How do the new capital allowances changes affect my business?

The new 40% first-year allowance 

A new 40% first-year allowance (FYA) was introduced for assets acquired after 1st January 2026. It is available to both companies and unincorporated businesses (sole traders and partnerships) that use the accruals basis of accounting. 

The 40% first year allowance applies to new and unused main-rate plant and machinery purchased by a business. In particular, it provides enhanced tax relief for unincorporated businesses, which are unable to access full expensing, when investing in qualifying assets. 

Notably, the 40% FYA is also available for certain assets acquired for leasing, which previously did not qualify for full expensing. This is a welcome change for leasing and rental companies. 

The allowance is not available for cars or second-hand assets. 

The writing-down allowance rate cut 

The main rate of writing-down allowance (WDA) will reduce from 18% to 14%, with effect from: 

• 1st April 2026 for companies, and  
• 6th April 2026 for unincorporated businesses 

This will mainly affect businesses with significant capital allowance pool balances relating for assets on which capital allowances have already been claimed. This means businesses will receive relief more slowly, with a lower rate of deduction available in future years. 

The WDA rate change applies to expenditure that qualifies for the main rate capital allowances pool, which is generally qualifying plant and machinery. 

Key dates and transitional rules 

Update	Who it applies to	Effective date	Transitional rules
40% first year allowance	Companies and unincorporated businesses	1st January 2026	None. Applies to new expenditure from the effective date.
Main rate writing down allowance rate change	Companies	1st April 2026	Hybrid WDA applicable if the accounting period straddles the effective date.
Main rate writing down allowance rate change	Unincorporated businesses subject to income tax and using the accruals basis.	6th April 2026	Hybrid WDA applicable if the accounting period straddles the effective date.

Tax planning opportunities 

Both companies and unincorporated businesses should remember that they may be able to claim the Annual Investment Allowance (AIA), which provides 100% tax relief on qualifying expenditure up to an annual limit of £1 million. This is particularly important for unincorporated businesses to consider first, as they are not eligible for full expensing. 

The new 40% first year allowance offers accelerated tax relief on qualifying plant and machinery where neither the AIA nor full expensing are available, whether due to the level of expenditure, the business structure, or the type of asset. This enables businesses to claim relief on a wider range of investments, including certain leased assets. 

If you are planning to invest in plant and machinery that does not qualify for full up-front relief, you may wish to consider bringing forward your expenditure to before the relevant effective date of the writing down allowance rate change, allowing you to benefit from the higher rate of relief  (18% instead of 14%) for longer. 

Example 1:  

If your company buys a new asset for £100,000 on 1st March 2026 to be leased out, it may not qualify for full expensing. In that case, the business may instead be able to claim the 40% FYA, giving an upfront deduction of £40,000 in Year 1. 

Example 2: 

If your company buys a new asset for £50,000 on 1st March 2026 that does not qualify for any up-front reliefs i.e. a car, allocated to the main pool for capital allowances, it will attract WDAs of £7,000 (rather than £9,000, which it would have qualified for on 28th February 2026) in Year 1. This results in a £2,000 lower tax deduction in the first year. 

How TaxAssist Accountants can help 

If you have questions about how the capital allowances changes could impact your business’ existing assets or future investments, speak to our tax specialists who can help you with the implications of the new rules.  

If you need any help or assistance, call us on 020 3859 0575 or use our online enquiry form.  

First published 5 Feb 2026

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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