The writing-down allowance (WDA) for capital assets will be lowered from April 2026 and a new first year allowance is introduced.
Currently, companies can claim full expensing to deduct 100% of the cost of new and unused qualifying assets from their taxable profits.
The annual investment allowance (AIA) also provides 100% tax relief on up to £1m per year of qualifying expenditure for companies and unincorporated businesses.
Certain assets do not qualify for the reliefs, for example full expensing cannot be claimed on second-hand or leased assets, while cars are excluded from both full expensing and the AIA. However, this refers only to assets you lease out to others, not assets you lease from someone else to use in your own trade (although short term leases would still be expensed to the P&L and no go through capital allowances).
Where neither relief is available businesses can claim a WDA to deduct a percentage of the cost of plant and machinery from their taxable profit each year. From 1.4.26 for companies and 6.4.26 for unincorporated businesses the WDA for assets in the main pool will be reduced from 18% to 14% (reducing balance). Some assets attract a lower rate of capital allowances if they are long lasting or integral to the building. These should be recorded in the special pool where the WDA will remain unchanged at 6%.
For businesses with a year end that does not coincide with the change a hybrid rate will need to be calculated and applied to assets purchased in the 2026-27 tax year.
To offset the reduced WDA a new permanent first year allowance (FYA) will allow businesses to deduct 40% of the cost of qualifying main pool assets, including assets bought for leasing, from 1.1.26. Cars, second-hand assets and assets for leasing overseas will not be eligible for the FYA.
Qualifying expenditure on zero-emission electric cars and electric vehicle charge points attracts a separate 100% first year allowance. This was due to expire in 2026 but has been extended to 31.3.27 for companies and 5.4.27 for individuals.
If you are planning to purchase assets for use in your business, or there is a significant balance in your main pool, contact us to discuss what these changes will mean for your business.
