If your business bought equipment, vehicles, or machinery in the last tax year, the amount you can deduct from your profits just changed. From April 2026, the main writing-down allowance (WDA) rate dropped from 18% to 14%, and a new 40% first-year allowance (FYA) kicked in for qualifying purchases. Both changes landed at the same time, which has left a lot of business owners confused about what they can actually claim.
TL;DR: The main-rate WDA fell from 18% to 14% from April 2026. A new 40% first-year allowance applies to new plant and machinery bought from 1 January 2026. The Annual Investment Allowance stays at £1 million, and full expensing remains permanent for companies. Sole traders and partnerships now qualify for the 40% FYA too.
What Changed with Capital Allowances in April 2026?
Two things happened at once. The main-rate WDA dropped from 18% to 14% (GOV.UK, 2026), effective 1 April 2026 for companies and 6 April 2026 for sole traders and partnerships. At the same time, a new 40% first-year allowance became available for qualifying expenditure on new plant and machinery, introduced from 1 January 2026 (GOV.UK, 2025 Autumn Budget).
The special rate pool stays at 6%, and the Structures and Buildings Allowance remains at 3% per year on a straight-line basis (GOV.UK, 2026). Neither of those changed.
In our experience, most small businesses with annual capital spending under £1 million will barely feel the WDA cut. The Annual Investment Allowance (AIA) still covers up to £1 million of qualifying expenditure at 100% (GOV.UK, 2026), so the WDA reduction mostly hits businesses with large historic pools or spending above the AIA cap.
Who Does the WDA Cut Actually Affect?
The 14% rate applies to the main pool balance - that's the cumulative unrelieved expenditure carried forward from previous years. If your business claimed the full AIA or full expensing on everything it bought, your pool balance might be close to zero. In that case, the WDA rate change makes very little practical difference.
But if you carry a significant main pool balance - common with businesses that have accumulated years of partly relieved assets - you will get less relief each year going forward. For a company with a £500,000 main pool balance, the annual WDA drops from £90,000 (at 18%) to £70,000 (at 14%). That is a £20,000 reduction in your deductible amount, which at the 25% corporation tax rate (GOV.UK, 2026) means £5,000 more tax per year.
What we see most often is businesses that bought second-hand assets or cars. These rarely qualify for the AIA, full expensing, or the new 40% FYA, so they sit in the pool and get relieved at the WDA rate. Those businesses feel the cut most.
How Does the New 40% First-Year Allowance Work?
The 40% FYA gives you accelerated relief in the year you buy a qualifying asset. Instead of claiming 14% of the cost each year through the WDA, you claim 40% upfront in year one, with the remainder entering the main pool for WDA at 14% in subsequent years.
It applies to new and unused main-rate plant and machinery (GOV.UK, 2026). Cars and second-hand assets do not qualify. It is available to all business types - companies, sole traders, and partnerships. Companies have had access since 1 January 2026, and unincorporated businesses from 6 April 2026.
One question clients always ask: "Why would I use the 40% FYA when the AIA gives me 100%?" The answer is straightforward. The AIA has a £1 million annual cap. If your capital spending exceeds that, or if you are in a group that shares the AIA between companies, the 40% FYA picks up where the AIA leaves off.
Does Full Expensing Still Apply?
Yes. Full expensing remains permanent for companies. It provides a 100% first-year deduction for qualifying new main-rate plant and machinery, with no annual cap (GOV.UK, 2026). The OBR estimated that permanent full expensing would increase total business investment by £14 billion over the forecast period (OBR, 2023).
Full expensing is only available to companies paying corporation tax. Sole traders and partnerships cannot use it. Cars are excluded, as are most assets used for leasing.
For companies, full expensing is almost always more generous than the 40% FYA for qualifying assets. The 40% FYA fills a gap for assets that do not qualify for full expensing - particularly leased assets, where the new allowance has reduced restrictions compared to full expensing.
Current Capital Allowance Rates at a Glance
Here is the full picture for accounting periods from April 2026:
| Allowance | Rate | Who Can Claim | Notes |
|---|---|---|---|
| Annual Investment Allowance (AIA) | 100% up to £1m | All businesses | Covers most small business purchases |
| Full expensing | 100% (no cap) | Companies only | New main-rate P&M, excludes cars |
| 40% First-Year Allowance | 40% | All businesses | New main-rate P&M from Jan 2026, excludes cars |
| Main pool WDA | 14% | All businesses | Down from 18%, reducing balance |
| Special rate pool WDA | 6% | All businesses | Integral features, long-life assets |
| Structures and Buildings | 3% | All businesses | Straight-line over 33.3 years |
| Zero-emission cars | 100% FYA | All businesses | Fully electric vehicles only |
| Low-emission cars (1-50g/km CO2) | 14% WDA | All businesses | Main pool, was 18% |
UK businesses claimed a total of £155.3 billion in capital allowances in 2022-23 (HMRC Corporation Tax Statistics, 2024). With the rate changes, planning which allowance to use has become more important.
Transitional Periods for Straddling Accounting Periods
If your accounting period straddles the April 2026 date, HMRC applies a hybrid rate. The WDA is calculated based on the proportion of the chargeable period falling before and after the change date (GOV.UK, 2026).
For example, a company with a 31 December year end has an accounting period from 1 January 2026 to 31 December 2026. Nine months fall after 1 April 2026. The WDA rate for that period would be a weighted average - roughly 15% rather than the full 18% or the new 14%. Your year-end accounts should reflect the correct blended rate.
This transitional rule applies only to the WDA. The 40% FYA has been available since 1 January 2026 regardless of your accounting period.
What Should You Do Now?
The practical steps depend on your business structure and spending patterns.
Companies spending under £1 million per year: The AIA and full expensing cover you. The WDA cut is unlikely to change your tax bill. Keep buying what you need and claim 100%.
Companies spending over £1 million: Use full expensing first (no cap), then the 40% FYA for anything that does not qualify. The WDA only matters for your existing pool balance.
Sole traders and partnerships: You now have the 40% FYA for new equipment purchases above the £1 million AIA. For second-hand assets and cars, you are stuck with the lower 14% WDA. If you are choosing between sole trader and limited company status, the availability of full expensing for companies is worth factoring in. And if you are newly within Making Tax Digital scope, make sure your software handles capital allowances correctly in quarterly updates.
Businesses with large pool balances: Consider whether accelerating asset disposals or claiming balancing allowances could reduce your pool before the lower rate bites further. Talk to your accountant about year-end planning strategies.
The UK corporation tax late filing penalties have also increased from April 2026, so getting your capital allowances claim right the first time matters more than ever.
Frequently Asked Questions
Has the Annual Investment Allowance changed in 2026?
No. The AIA remains at £1 million per year. It gives 100% relief on qualifying plant and machinery up to that limit and is available to all business types - companies, sole traders, and partnerships.
Can sole traders claim the new 40% first-year allowance?
Yes. From 6 April 2026, the 40% FYA is available to sole traders and partnerships, not only companies. It applies to new and unused main-rate plant and machinery. Cars and second-hand assets are excluded.
Do electric vehicles still get 100% relief?
Yes. Zero-emission cars (fully electric) continue to qualify for a 100% first-year allowance. Cars with CO2 emissions of 1-50g/km go into the main pool at the new 14% WDA. Cars above 50g/km sit in the special rate pool at 6%.
What is the difference between full expensing and the 40% FYA?
Full expensing gives 100% relief with no cap but is only available to companies. The 40% FYA gives 40% relief in year one and is available to all businesses, including sole traders. The 40% FYA also covers some leased assets that full expensing excludes.
Does the WDA reduction apply to the special rate pool?
No. The special rate pool WDA remains at 6%. Only the main pool rate changed, dropping from 18% to 14%.
Not sure how the new rates affect your capital spending plans? Get in touch - we work with UK businesses of all sizes and can review your capital allowances position before your next filing.