Changes to capital allowances announced in the 2025 Budget are now taking effect.
From 1 April 2026 for companies and 6 April 2026 for unincorporated businesses, the main rate Writing‑Down Allowance (WDA) has reduced from 18% to 14%.
While this may sound like a technical change, it has a direct impact on how quickly businesses receive tax relief on capital investment – and therefore on cashflow.
What’s changed?
The main pool WDA rate has dropped to 14%. This means tax relief on qualifying plant and machinery will now be spread over a longer period.
For businesses with significant capital expenditure – or large existing capital allowance pools – this slows the rate at which tax relief is obtained, even though the total relief available over time remains the same.
Why this matters
In practical terms, the same investment will now deliver tax relief more slowly than before.
For asset‑heavy businesses, this can create a mismatch between when cash is spent on equipment and when tax savings are realised – particularly where relief sits in large capital allowance pools and is only released gradually through WDAs. With cashflow under ongoing pressure for many businesses, the timing of relief matters just as much as the total amount available.
In particular:
- Tax relief on plant and machinery will be received more slowly
- Businesses with large historic capital allowance pools will feel the impact most
- Relying solely on WDAs is now less efficient from a cashflow perspective
This makes forward planning around capital allowances increasingly important.
New 40% FYA
Alongside the WDA reduction, a new 40% First‑Year Allowance (FYA) was introduced from January 2026 for qualifying plant and machinery.
This provides upfront tax relief in certain situations where full expensing isn’t available – particularly for:
- Unincorporated businesses
- Leasing and hire businesses
Together, these changes are intended to rebalance how relief is given:
- Less relief through ongoing WDAs
- More targeted upfront relief at the point of investment
For some businesses, this offers a valuable opportunity to accelerate relief and improve post‑tax cashflow.
What should businesses be thinking about now?
With WDA rates now reduced, taking a proactive approach to capital allowance planning has become more important.
Key considerations include:
- Whether planned expenditure qualifies for upfront reliefs such as the Annual Investment Allowance (AIA), First Year Allowances (FYA) or full expensing.
- Timing and fully analysing capital investment to maximise first year relief
A structured review can help ensure capital investments are taxed as efficiently as possible and unwanted cashflow delays are avoided.
Get in touch
The reduction in WDA rates is now in force. While full tax relief is still available over time, it will simply take longer to obtain.
For many businesses, this makes upfront allowances and careful planning more valuable than ever.
If you’re investing in equipment or machinery – or sitting on large capital allowance pools – now is a good time to review how those assets are being relieved for tax and whether there are opportunities to improve the timing of relief. Get in touch with Claire Astley, tax director, by clicking the button below.
