Key Policy Changes
From 1 April 2026 (Corporation Tax) and 6 April 2026 (Income Tax), the UK government is changing the main rate of writing-down allowances (WDAs) for plant & machinery from 18% to 14%. At the same time, a new permanent first-year allowance (FYA) at 40% will be introduced for certain assets that are outside the scope of full expensing and the Annual Investment Allowance (AIA). (gov.uk)
Which Entities and Investments Are Most Affected
- Corporations, partnerships and unincorporated businesses that previously relied on WDAs to deduct capital costs gradually.
- Entities leasing assets (e.g. leasing companies) that were previously unable to benefit fully from full expensing or the AIA. Now the new FYA will give earlier relief.
- Those acquiring second-hand assets and cars which are excluded from the new first-year allowance and provisions. Cars and used assets won’t qualify. (gov.uk)
Examples of Financial Impact
| Scenario | Before 1 April 2026 | After 1 April 2026 |
|---|---|---|
| New factory equipment (new asset) company | Write off via AIA or full expensing (immediate cost relief) | |
| Asset not eligible for full expensing (new) | 18% reducing balance over multiple years | |
| Asset not eligible after change | 14% reducing balance, slower write-offs | |
| Leasing company buying new qualifying assets | Can apply 40% FYA, speeding up relief | |
| Buying a used car | Neither full expensing nor new FYA—must use WDAs or other reliefs |
Setup Advice for New Entities or Investments
- Inventory planning: Identify eligible assets before acquisition to maximise FYA or AIA usage.
- Timing purchases: If possible, commit to purchases early in the tax year to obtain more relief sooner.
- Entity structure: For leasing entities or those investing heavily in plant & machinery, consider if operating via a company or partnership gives better tax reliefs under the new rules.
- Accounting for exclusions: Keep track of assets that don’t qualify (cars, second-hand), as they will fall back to WDAs.
- Cashflow management: Because frontloaded allowances like FYAs shift tax relief toward sooner, plan tax payments and revenues accordingly.
Strategic Considerations
- While full expensing and high AIA thresholds continue, the narrower scope means many assets may now benefit less than before—understanding qualification becomes more important.
- Adjust long-term investment planning: slower relief (via 14% WDAs) can affect ROI calculations for major capital investments.
- For businesses beginning or set up in or after April 2026, entity selection (company vs partnership vs sole trader) can influence how and when tax reliefs are claimed.
- Consult a tax adviser to map out project timelines to align asset purchasing with optimal tax relief windows under the updated regime.
Understanding these entity setup and investment timing changes will help maximise tax benefits while avoiding surprises when claiming relief under UK’s changed capital allowances regime.