Measure
The government is reducing the main rate of writing-down allowance for plant or machinery from 18% to 14%. It is also introducing a new 40% first-year allowance for main rate assets, which will apply to new expenditure on eligible assets, including most plant or machinery for leasing, but will exclude second-hand assets, cars, and assets leased overseas. Finally, the government has confirmed that it will be extending the 100% first-year allowance for zero emission cars and electric vehicle charge points by a further year.
Companies within the charge to corporation tax, as well as income taxpayers incurring capital expenditure on eligible plant and machinery. In particular, the new 40% first-year allowance will benefit businesses that could not previously access full expensing, such as leasing and hire businesses, as well as unincorporated businesses (e.g. partnerships of individuals).
The new 40% first-year allowance will take effect from 1 January 2026.
The reduced 14% main rate writing-down allowance will be effective from 1 April 2026 for corporation tax and 6 April 2026 for income tax.
The 100% first-year allowance for zero emission cars and electric vehicle charge points will remain in place until 31 March 2027 for corporation tax purposes and 5 April 2027 for income tax purposes.
The reduction in the main rate of writing-down allowance will impact businesses with large brought forward main pool balances who will suffer a lower rate of relief on these pools going forward. It may also reduce incentives for investment in cars and second-hand assets.
The government had previously consulted on the potential removal of the first-year allowance restriction for lessors. The introduction of a 40% first-year allowance for a broader range of assets, including those for leasing, is not just a welcome acceleration of relief for the leasing industry, but also extends to others such as partnerships of individuals and other unincorporated businesses. This will help such businesses to moderate the effect of the lowering of the main writing-down allowance rate. The maintenance of the full expensing and annual investment allowance rates should ensure eligible businesses remain incentivised to invest going forward.