Capital allowances: 50% first-year allowance and 12% WDA

Budget 2026 changes the two main rates of capital allowances on plant and machinery in opposite directions. New investment gets a bigger upfront deduction, with the main rate first-year allowance (FYA) rising from 40% to 50%. Everything that stays in the main pool gets slower relief, with the writing down allowance (WDA) cut from 14% to 12%. The Treasury expects the package to raise about £1 billion a year, so for most clients the WDA cut matters more than the FYA increase.

What was announced

The Treasury will legislate in Finance Bill 2026-27 to:

• increase the main rate first-year allowance to 50% for expenditure incurred on or after 1 January 2027
• reduce the main rate writing down allowance to 12%, from 1 April 2027 for corporation tax and 6 April 2027 for income tax

In his Budget speech the Chancellor said he was “maintaining full expensing in Corporation Tax for eligible assets” while making these two changes. The Budget document says the WDA cut is there “to raise revenue”, and the FYA increase is to boost incentives for new investment while keeping to the Corporate Tax Roadmap.

The rates after Budget 2026

The policy costings say the higher FYA applies only to new main rate expenditure, including plant or machinery bought for leasing, and excludes second-hand assets and cars. The WDA cut applies to all main rate expenditure, including balances already in the pool.

Who gains and who loses

Companies buying new plant. Most new main rate plant bought by companies already qualifies for full expensing at 100%, so the 50% FYA matters mainly for assets that full expensing does not cover, such as plant bought for leasing.

Unincorporated businesses. Sole traders and partnerships cannot use full expensing, but the £1 million AIA covers almost all of their spending. The 50% FYA matters for the few that spend more than that in a year, or whose AIA is shared or restricted.

Everyone with a main pool balance. The 12% WDA applies to brought forward balances, to second-hand assets that do not get the AIA, and to cars with emissions of 50g/km or less. GOV.UK guidance says cars do not qualify for the AIA, full expensing or the main rate FYA, so business car purchases will be relieved more slowly.

The costings put the net yield at £765 million in 2027-28, rising to £1.12 billion by 2031-32, and allow for some businesses shifting spending or claims to the more generous allowances.

Worked examples

Pool balance. A company has a main pool balance of £100,000 at the start of an accounting period beginning 1 April 2027 and buys nothing new. Its WDA for the year is £12,000 instead of £14,000. The £2,000 is not lost, just deferred to later years.

Large investment by a partnership. A partnership spends £1.5 million on new machinery in March 2027. The first £1 million is covered by the AIA. On the remaining £500,000, the 50% FYA gives £250,000 in year one, where the 40% FYA would have given £200,000. The rest goes into the main pool at the WDA rate.

What it means for accountants

Check accounting periods that straddle the start dates. The WDA cut takes effect from 1 April 2027 for companies and 6 April 2027 for income tax. Periods that span those dates will need a hybrid rate, and the Finance Bill will set out how it is calculated.

Consider timing of spending around 1 January 2027. Clients planning large main rate purchases that will not be covered by the AIA or full expensing may get more relief by incurring the expenditure on or after 1 January 2027. Under the existing rules the date expenditure is incurred is normally when the obligation to pay becomes unconditional, so contract terms matter.

Review car policies. With cars stuck at 12% or 6% allowances, the case for zero-emission cars strengthens. GOV.UK guidance says the 100% first-year allowance for new zero-emission cars and electric vehicle charge points applies to purchases before April 2027, so clients planning to rely on it after that date should check the position first.

Update tax computation templates and forecasts. Corporation tax forecasts for 2027-28 onwards should reflect the slower relief on pool balances.

For more detail on the underlying rules, see our guides to capital allowances and the Annual Investment Allowance. For the other corporation tax measures, read Corporation Tax in Budget 2026.

Frequently asked questions

When does the 50% first-year allowance start?

For qualifying main rate expenditure incurred on or after 1 January 2027. Before that date the main rate first-year allowance is 40%.

When does the writing down allowance fall to 12%?

From 1 April 2027 for corporation tax and 6 April 2027 for income tax. The special rate writing down allowance stays at 6%.

Is full expensing changing?

No. The government is keeping full expensing at 100% for companies’ qualifying new main rate plant and machinery, and the 50% first-year allowance for special rate assets.

Can I claim the 50% first-year allowance on a car?

No. The policy costings say the higher first-year allowance excludes cars and second-hand assets. Cars generally get writing down allowances at 12% or 6%, unless they qualify for a 100% first-year allowance as new zero-emission cars.