Plant and machinery capital allowances

Businesses looking to obtain relief for capital expenditure on qualifying plant and machinery have a number of options open to them. From April 2026, there will be an additional item on the menu, a new 40% first year allowance (FYA). This will be available as well as the Annual Investment Allowance (AIA), the first year allowance for zero emission vehicles and, for companies, full expensing and the 50% first year allowance.

Where qualifying expenditure is not relieved in full in the year in which it is incurred, relief is instead given by means of a writing down allowance (WDA) on a reducing balance basis. Currently, main rate expenditure is entitled to a WDA for 18%; for special rate expenditure the rate is 6%. However, from 1 April 2026 for corporation tax purposes and from 6 April for income tax purposes, the rate of WDA on main pool plant and machinery expenditure is reduced to 14%. Where the chargeable period spans the date on which the rate changes, a hybrid rate will apply. For assets that do not qualify for a first year allowance, the reduction in the rate will lengthen the period over which relief is given.

The Annual Investment Allowance

The AIA provides immediate relief for qualifying expenditure on plant and machinery in the chargeable period in which the expenditure was incurred up to the AIA limit, which has been £1 million since 1 January 2019. Both companies and unincorporated businesses can benefit from the AIA and it is available in respect of most items of plant and machinery, whether new or second hand, with the notable exception of business cars. The AIA is also not available in respect of items that had been previously owned by the trader for another purpose before being used in the business or for items that are given to the business.

As with all capital allowances claims, claiming the AIA is optional. Further, if a claim is made, it does not need to be in respect of the full amount of the expenditure. Where a claim is made in respect of part of the expenditure, relief is given for the balance by means of a WDA.

Full expensing

Companies are able to benefit from full expensing in addition to the AIA. However, it is not available to unincorporated businesses. As with the AIA, it works like a 100% first year allowance, but unlike the AIA there is no limit on the amount of qualifying expenditure which can be expensed immediately. A further difference is that full expensing is only available for new and unused assets that would otherwise qualify for main rate WDA’s.

Full expensing is optional. Where expenditure on new and unused main rate assets is not relieved by full expensing or another FYA, relief is given in the form of main rate WDA’s.

As with the AIA, full expensing cannot be claimed expenditure on cars.

50% first year allowance

Sitting alongside full expensing is a 50% FYA for companies only which is available for expenditure on new and unused assets which would otherwise qualify for special rate WDA’s. Expenditure not relieved by the 50% FYA qualifies for special rate WDA’s.

40% first year allowance

It was announced at the time of the Autumn 2025 Budget that a new first year allowance is to be introduced in April 2026 for main rate expenditure which will be available to both companies and unincorporated businesses. It will apply from 1 April 2026 for corporation tax and from 6 April 2026 for income tax. The new allowance will be available for expenditure on new main rate assets, including those bought for leasing. However, expenditure on cars will be excluded from it’s scope.

The aim of the new allowance is to encourage investment in plant and machinery where existing FYA’s are not available.

100% first year allowance for zero emission cars

Expenditure on business cars does not qualify for AIA, full expensing, the 50% FYA or the new 40% FYA. However, a 100% FYA is available for expenditure on new zero emission cars.

It was announced at the time of the 2025 Autumn Budget that the availability of this FYA will be extended by one year and will continue to be available for expenditure incurred on or before 31 March 2027 for corporation tax purposes and in respect of expenditure incurred on or before 5 April 2027 for income tax purposes.

100% FYA for electric vehicle charge points

 Qualifying expenditure on plant and machinery for electric vehicle charge points benefits from a 100% FYA.

It was announced at the time of the Autumn 2025 Budget that the availability of the 100% FYA will be extended by one year and will be available where the expenditure is incurred on or before 31 March 2027 for corporation tax purposes and on or before 5 April 2027 for income tax purposes.

Writing down allowances

 Where a FYA is not available, as is the case for cars other than the new zero emission cars, or not claimed, relief for qualifying capital expenditure is given in the form of a WDA, a main rate and a special rate. Most qualifying expenditure is main rate expenditure. However, certain assets, such as cars which are not low emission cars (currently those whose CO2 emissions are 50g/km or above), integral features of a building, solar panels, items with a long life and thermal insulation, are special rate assets and only entitled to a lower WDA.

Relief for expenditure on special rate assets is given at the rate of 6% on a reducing balance basis. Currently, main rate is to be reduced to 14% from 1 April 2026 for corporation tax purposes and from 6 April 2026 for income tax purposes. Where the chargeable period spans 1/6 April, a hybrid rate will apply. The hybrid rate will reflect the proportion of the chargeable period falling before 1/6 April 2026 and the proportion falling on or after that date.

Companies

 Companies have a lot of options open to them when it comes to relieving plant and machinery capital allowances. Generally, the aim is to secure relief for the expenditure as early as possible.

The AIA is limited to £1 million and as that is the only route for relieving qualifying expenditure on second hand assets in full in the year in which they are incurred, the AIA limit should be used first for second hand assets. It can also be used for expenditure on assets (other than cars) which qualify for special rate allowances. To the extent that is not used up on qualifying expenditure on second hand assets, the AIA should then be used for qualifying expenditure on new and unused special assets (which would otherwise only be eligible for a 50% FYA).

Once the AIA has been used up, the 50% FYA can be claimed for further expenditure on new and unused special rate assets.

Expenditure on new main rate assets can be relieved in the year in which the expenditure was incurred by claiming the AIA where the limit has not been otherwise used or by claiming full expensing. Both routes achieve the same result.

For main rate assets which are not eligible for full expensing or the AIA, where the expenditure is incurred on or after 1 April 2026, the new 40% FYA should be claimed if available. Assets used for leasing other than cars fall into this category.

Where relief cannot be given in the form of an FYA, WDA’s should be claimed.

Claiming FYA’s where available rather than WDA’s will provide relief at the earliest opportunity.

Unincorporated businesses

The cash basis is now the default basis of accounts preparation, and where the cash basis is used, relief for capital expenditure is given as a deduction in computing profits unless such a deduction in computing profits unless such a deduction is specifically prohibited, as in the case of cars. Where this is the case, capital allowances can be claimed instead as long as the simplified expenses can be claimed instead as long as the simplified expenses system has not been used.

For unincorporated businesses using the accruals basis, relief for qualifying capital expenditure on plant or machinery is given through the capital allowances system. To obtain relief in the year of expenditure, the AIA should be claimed, or from 6 April 2026, the new 40% FYA for expenditure on new main rate assets where the Aia is not available.

However, to prevent loss of the personal allowance, claims should be tailored to reduce profits so they are no lower than the person allowance. Expenditure not relieved by the AIA or new 40% FYA qualifies for WDA’s.