Tax Planning
How UK Businesses Can Make the Most of the New 40% First-Year Allowance
The UK has introduced a 40% First-Year Allowance (FYA) from 1 January 2026 for main-rate plant and machinery. Here’s what it means, who qualifies, and how to apply it smartly to optimise tax advantage.
By NomadicTax Research Team • 5-8 min read • March 6, 2026
## What’s Changing and Why It Matters
From **1 January 2026**, UK businesses can claim a **40% First-Year Allowance (FYA)** for qualifying new expenditure on “main-rate” plant and machinery when other reliefs aren’t available. Simultaneously, the **Writing-Down Allowance (WDA)** rate for main-rate plant and machinery will drop from **18% to 14%**. ([gov.uk](https://www.gov.uk/government/publications/new-first-year-allowance-and-main-rate-of-writing-down-allowances?utm_source=openai))
These changes aim to accelerate relief for investment, especially for businesses and assets that fall outside full expensing, Annual Investment Allowance (AIA), or existing FYAs (e.g. for leasing, unincorporated businesses). ([gov.uk](https://www.gov.uk/government/publications/new-first-year-allowance-and-main-rate-of-writing-down-allowances/capital-allowances-new-first-year-allowance-and-reducing-main-rate-writing-down-allowances?utm_source=openai))
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## Who Qualifies and Key Exclusions
| Eligible | Not Eligible |
|---|---|
| • Main-rate plant & machinery assets used in business<br>• New, unused, not second-hand<br>• Expenditure incurred **from 1 January 2026** onwards<br>• Both incorporated and unincorporated businesses (including leasing providers under certain conditions) | • Cars<br>• Special-rate expenditure (e.g. long-life assets or those with low emissions rules)<br>• Second-hand assets<br>• Expenditure under disqualifying arrangements <br>• Assets already qualifying for full expensing or AIA where those remain better options | ([gov.uk](https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca23195a?utm_source=openai))
## How to Use It Smartly: Actionable Insights
- **Compare relief options:** Full expensing, AIA, the 40% FYA, and WDA all offer different timing of relief. Always calculate which gives the greatest tax saving in the short term vs long term.
- **Plan the timing of expenditure:** If an asset is eligible for 40% FYA, incurring expenditure **on or after 1 January 2026** can bring forward relief compared with later deductions under WDA. ([gov.uk](https://www.gov.uk/government/publications/new-first-year-allowance-and-main-rate-of-writing-down-allowances?utm_source=openai))
- **Exclude second-hand assets:** Buying second-hand rules out FYA. If feasible, use new equipment to benefit.
- **Leasing considerations:** Leasing providers may be eligible for 40% FYA in certain cases; check if your leasing arrangements disqualify you. ([gov.uk](https://www.gov.uk/government/publications/new-first-year-allowance-and-main-rate-of-writing-down-allowances/capital-allowances-new-first-year-allowance-and-reducing-main-rate-writing-down-allowances?utm_source=openai))
- **Software & systems readiness:** Ensure your accounting system tracks “incurred on or after” dates; mix-period chargeable periods may require prorated claims. ([gov.uk](https://www.gov.uk/government/publications/new-first-year-allowance-and-main-rate-of-writing-down-allowances/capital-allowances-new-first-year-allowance-and-reducing-main-rate-writing-down-allowances?utm_source=openai))
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## Example Scenarios
- **Incorporated company buying new machinery for £100,000 on 5 January 2026:** With 40% FYA, £40,000 can be claimed immediately; remaining written down under WDA at 14%. Without FYA, the full amount would be written down at 14%. Substantial first-year cash-flow benefit.
- **Sole trader buying equipment:** If not eligible for full expensing or AIA (for example outside those caps), the trader can use the 40% FYA to accelerate deductions in the 2026-27 tax year. Helps reduce taxable profits when income is volatile.
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## Things to Watch Out For
- Assets used for leasing and certain corporate/unincorporated cases have specific rules or restrictions. Scrutinise whether leases disqualify your FYA claim. ([gov.uk](https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca23195a?utm_source=openai))
- Legislative action is being introduced via the Finance Bill 2025-26; ensure compliance with newly laid statutory instruments. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-overview-of-tax-legislation-and-rates-ootlar/budget-2025-overview-of-tax-legislation-and-rates-ootlar?utm_source=openai))
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## Summary
This measure offers a **high impact opportunity** for businesses planning capital investment. If you're incurring qualifying plant and machinery costs **from 1 Jan-2026**, the 40% FYA gives an accelerated reduction in taxable profits. Even though WDA rates fall, the combined relief options provide flexibility. Strategic planning around eligibility, timing, and asset type can yield significant tax savings.