Budget 2025: writing down allowance reduced to 14%
03/12/2025
Writing Down Allowance Cut to 14% from April 2026: Will It Hurt Business Investment?
In the Autumn Budget 2025, Chancellor Rachel Reeves announced significant changes to capital allowances that will affect almost every UK business investing in plant and machinery.
The headline change: the main rate of writing down allowance (WDA) on the main pool of plant and machinery will fall from 18% to 14% starting April 2026 (1 April for corporation tax, 6 April for income tax).
At the same time, the government is introducing a temporary 40% first-year allowance (FYA) for main-rate assets from 1 January 2026. However, this enhanced relief will not apply to cars, second-hand assets, or assets intended for leasing overseas.
Key Dates at a Glance
- 1 January 2026 – New 40% first-year allowance available
- 1/6 April 2026 – Main rate WDA reduced to 14%
- Transitional “hybrid” rates apply for accounting periods that straddle the April 2026 change
Why the Change?
The Treasury says the cut is needed “to incentivise future investment and encourage growth in the UK economy” and expects it to raise £1.5 billion in both 2026-27 and 2027-28.
Critics argue the opposite may happen.
Derry Crowley, CEO at accountancy group Xeinadin, commented: “The reduction in the writing down allowance limits businesses looking to invest in equipment in order to remain competitive. Removing £1.5bn in relief at a time when firms are already managing tight margins could make long-term investment harder, not easier.”
Graeme Hills, head of tax at Duncan & Toplis, added: “It should be said that lowering the writing down allowance may not be offset by the additional 40% first-year allowance, as this will only benefit businesses in their first year. Businesses should model what this means for their investment timelines and tax positions, rather than assuming the headline first-year figure will compensate across the board.”
What Should Businesses Do Now?
- Bring forward planned 2025/26 capital expenditure before 1 April 2026 where possible to secure the current 18% rate for longer.
- Model the cashflow impact of the 14% rate versus the one-off 40% FYA – the new first-year boost may not fully replace the lost ongoing relief for multi-year investments.
- Review accounting period ends – straddling periods will use a time-apportioned hybrid rate, which could soften or complicate the transition depending on your year-end.
The Bottom Line
While the new 40% first-year allowance offers an immediate incentive for 2026 spending, the permanent cut to 14% reduces the total relief available over an asset’s life compared to the current 18% rate.
For many growing businesses, especially those making regular, longer-term investments in equipment, the changes could mean higher effective tax bills from 2026 onwards.
Early tax planning and cashflow modelling are now essential to understand the real impact on your business.
Speak to your accountant before finalising 2026 investment plans – a few months could make a significant difference to your corporation tax position.
