Capital allowances continue to provide an effective method for businesses to reduce their tax bills, by providing incentives for investment in eligible expenditure – typically plant and machinery.
The Government has altered two key reliefs – Writing Down Allowance (WDA) and a new First-Year Allowance (FYA).
Reduction of the Writing Down Allowance
The WDA has reduced from 18 per cent to 14 per cent on the main pool of qualifying plant and machinery assets.
This change took effect from 1 April 2026 for companies and 6 April 2026 for sole traders and partnerships.
Businesses with large brought forward main pool balances will lose the most from the reduction in the main rate of WDA.
The new First-Year Allowance
A new 40 per cent FYA on main rate expenditure, primarily still covering plant and machinery, was introduced for qualifying expenditure incurred on or after 1 January 2026.
This new FYA is intended to encourage investment in areas that other capital allowances don’t apply to, in particular, assets bought for leasing.
Sole traders and partnerships will also be able to benefit from this relief.
However, it is important to note that this FYA does not support investment in second-hand assets, cars or leased assets in other countries.
Finally, the Government has also confirmed that small business owners will continue to benefit from tax relief on electric vehicles, as the 100 per cent FYA for zero-emission vehicles and charge points has been extended until 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax.
This gives businesses greater certainty when planning ahead, while also providing a strong financial incentive to invest by reducing tax bills upfront.
Want to make more of capital allowances?
If you think you may be eligible for capital allowances, either due to the changes outlined in this article or more generally, then it is important that you claim the tax relief available to you.
