Entity Setup
Maximizing Investment Relief: New 40% First-Year Capital Allowance in the UK
UK businesses now can claim 40% first-year allowance on qualifying plant and machinery from 1 January 2026—this article explains when it's beneficial and how to optimise capital allowance planning.
By NomadicTax Research Team • 5-8 min read • April 21, 2026
## 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](https://www.gov.uk/government/news/business-investment-boosted-with-new-tax-relief-taking-effect-today?utm_source=openai))
Simultaneously, the **main rate writing-down allowance (WDA)** was reduced from **18% to 14%**, applicable from **April 2026**.([gov.uk](https://www.gov.uk/government/news/business-investment-boosted-with-new-tax-relief-taking-effect-today?utm_source=openai))
## 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](https://www.gov.uk/government/news/business-investment-boosted-with-new-tax-relief-taking-effect-today?utm_source=openai))
- Businesses leasing assets can benefit, and the relief isn’t just for incorporated entities.([gov.uk](https://www.gov.uk/government/news/business-investment-boosted-with-new-tax-relief-taking-effect-today?utm_source=openai))
## Strategic planning tips
1. **Accelerate investment decisions**: If you planned to invest in assets, consider doing so before the accounting period ends, to maximise the 40% allowance.
2. **Evaluate whether a full-expensing vs new FYA** strategy is better**: some assets may qualify differently; careful classification matters.
3. **Cash flow modelling**: the shift from annual writing down (at 18% → 14%) means assets will retain taxable value for longer—plan finance accordingly.
4. **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](https://www.gov.uk/government/news/business-investment-boosted-with-new-tax-relief-taking-effect-today?utm_source=openai))
## 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