What are the changes?
- First-Year Allowance of 40% takes effect from 1 January 2026 for qualifying main-rate plant and machinery, including assets bought for leasing and unincorporated businesses. This allows a larger portion of the cost to be deducted up front. (gov.uk)
- From 1 April 2026 for Corporation Tax, and 6 April 2026 for Income Tax, the main rate writing down allowance (WDA) for assets not eligible for full expensing is reduced from 18% to 14%. (assets.publishing.service.gov.uk)
Why this matters
- The reduction in WDA means that where you don’t use full expensing or the asset isn’t eligible, tax relief will be spread out more slowly.\
- The 40% first-year allowance softens that by allowing substantial up-front relief for main-rate assets. This makes timing of purchases more important.\
- Helps businesses with investment decisions: it may make sense to bring forward purchases of qualifying assets into periods when you can utilise first-year relief.
Practical strategies
- Prioritise eligible assets: pick assets that qualify for main-rate first-year allowance (new plant & machinery, etc.). Avoid second-hand, cars, or overseas-leased assets for this relief, as these are excluded. (gov.uk)
- Plan timing: if you plan to invest, do so before 1 January 2026 to take advantage of the first-year allowance; otherwise be aware of lower WDA rates.
- Tax structure check: For unincorporated businesses vs companies, understand how full expensing interacts with your tax status.
- Forecast cashflows properly, since upfront large deductions reduce taxable profits now but may lead to smaller relief in future years (because remaining assets now get a slower writing down rate).
Example comparisons
| Scenario | Asset cost £100,000 | Under old system | With 40% First-Year Allowance + 14% WDA |
|---|---|---|---|
| Corporation tax payer buying a qualified asset on 1 February 2026 | Relief: 100% full expensing (if eligible) | Under old system, WDA 18% in year 1 → relief £18,000, then trailing pool | |
| Income tax on similar asset for sole-trader from 1 June 2026 | First-year relief £40,000 + WDA 14% on remainder in subsequent years | Was: WDA 18% over years with no large up-front relief |
Actionable advice for different stakeholders
- Small businesses / sole traders: assess whether location of your purchases (company vs individual) changes relief; consider using company structure where more advantageous.
- Accountants: run cash flow and profit sensitivity models showing impact under old vs new regimes for clients planning investment-intensive years.
- Investors / leases: ensure leased assets are eligible; leased assets bought for leasing aren't always covered by first-year allowance if overseas or second-hand.
Bottom line: These changes incentivise investment by front-loading tax relief for eligible assets, but also reduce the attractiveness of slower, long-tail depreciation deductions via writing down allowances. Thoughtful timing, eligibility checks, and strategic planning will unlock maximum benefit.