Key policy change
A new 40% first-year allowance for main-rate plant and machinery investments became effective on 1 January 2026, allowing greater upfront deduction from taxable profits.(gov.uk) Simultaneously, the main rate writing-down allowance (WDA) was reduced from 18% to 14%, applicable from April 2026.(gov.uk)
How this impacts businesses and entities
- Companies and unincorporated businesses can deduct much more cost immediately for investments, improving cash flow and reducing tax liability earlier.(gov.uk)
- Businesses leasing assets can benefit, and the relief isn’t just for incorporated entities.(gov.uk)
Strategic planning tips
- Accelerate investment decisions: If you planned to invest in assets, consider doing so before the accounting period ends, to maximise the 40% allowance.
- Evaluate whether a full-expensing vs new FYA strategy is better**: some assets may qualify differently; careful classification matters.
- Cash flow modelling: the shift from annual writing down (at 18% → 14%) means assets will retain taxable value for longer—plan finance accordingly.
- Alignment with Corporation Tax rate cap: The corporate tax rate has been capped at 25% for this Parliament, reinforcing the benefit of large allowances.(gov.uk)
Example
A business buys new construction equipment costing £200,000 on 1 February 2026:
- Claim £80,000 immediately (40%) under first-year allowance.
- The remaining £120,000 enters WDA, written down at 14% from April 2026.
- Without the new rules, more of the cost would have been spread over time.
Considerations and caveats
- Ensure asset is main rate plant and machinery—not “special rate” items (like long-life or integral features) which often have lower allowance rates.
- Reliable record-keeping: date of purchase, whether used, asset classification.
- HMRC may require confirmation the investment is for business use.
— NomadicTax Research Team