A permanent 40% first-year allowance (FYA) for main-rate plant and machinery applies from today, Thursday 1 January 2026. First set out at Budget 2025, the measure extends upfront relief beyond existing routes and is confirmed in HM Treasury’s announcement and HMRC’s published policy paper.
Eligibility is broad. The new allowance is available to companies and unincorporated businesses and covers most main‑rate assets, including expenditure on assets for leasing. Cars, second‑hand assets and overseas leasing are excluded. The FYA applies to expenditure incurred on or after 1 January 2026.
Interaction with existing reliefs is unchanged. Companies can continue to claim full expensing (100% in year one) on qualifying main‑rate assets; the new 40% FYA is intended where full expensing or other FYAs do not apply. The £1 million Annual Investment Allowance remains available across business types.
As a balancing measure, the main rate writing‑down allowance (WDA) falls from 18% to 14% from 1 April 2026 for corporation tax and 6 April 2026 for income tax. For chargeable periods that straddle those dates, a time‑apportioned hybrid rate applies. HMRC confirms the special rate pool stays at 6%.
A worked example illustrates the mechanics. A company incurring £1,000,000 on a qualifying new asset on 1 January 2026 can claim a £400,000 deduction via the 40% FYA in year one. At a 25% corporation tax rate, that yields an immediate £100,000 tax saving. The remaining £600,000 enters the main pool; once the 14% WDA is in effect, that produces up to a further £84,000 deduction in a 12‑month period after the rate change, with the balance relieved over subsequent years. Actual outcomes depend on accounting period dates and apportionments.
For unincorporated businesses, the operation is similar: the 40% FYA reduces taxable profits in the year of investment, with the balance going into the main pool for WDAs at 14% from 6 April 2026. As with companies, cars and second‑hand assets are not eligible for the new FYA.
Policy intent and scope are set out in Budget 2025 and HMRC’s tax information and impact note: the FYA brings accelerated relief to assets and taxpayers outside the reach of full expensing while preserving incentives to invest. The operative dates, exclusions and transitional arrangements are confirmed in the same documents.
Full expensing remains a central feature of the corporate capital allowances framework, while the government’s Corporate Tax Roadmap 2024 commits to capping the main corporation tax rate at 25% for the remainder of this Parliament, alongside maintaining generous capital allowances, to provide policy stability.
Timing is critical. The new FYA is available only for expenditure incurred on or after 1 January 2026, so projects crossing that date should confirm when expenditure is treated as incurred for tax purposes. For periods spanning April 2026, the hybrid WDA rate will need to be pro‑rated in computations and reflected in deferred tax schedules.
Finance teams should now re‑forecast 2026 capital programmes against the £1 million AIA and full expensing, isolate leasing and unincorporated exposures where the 40% FYA alters cash‑flow profiles, and update tax provisioning for the 14% WDA from April. HM Treasury’s release confirms the rules are live from today.