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Capital Goods Scheme adjustments are necessary when there is a change in use of land or a building that is a capital item. Where a method does not treat individual buildings as partial exemption sectors in their own right, what is probably needed is a sector to deal with capital items.

There are normally two things that need to be thought about when including capital items within the partial exemption method - how to deal with the initial deduction (including the ‘longer period� adjustment) of input tax and how to deal with ‘subsequent interval� adjustments. The method should specify how the input tax is to be apportioned in the event of initial mixed-use (i.e. taxable/exempt) or any subsequent changes of use (i.e. from exempt to taxable).

Finally, the method also needs to address disposals during the adjustment period and ought also to address TOGC/movement in/out of VAT groups (as the business could receive capital items this way).