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The Autumn Budget, delivered last 26th November 2025, introduced changes to how businesses can claim tax relief on equipment and machinery. Some of these changes have recently been implemented. These changes do not remove Capital Allowances, but they do affect how quickly tax relief is received and which routes are available.
If your business invests in tools, machinery or equipment, Capital Allowances remain an important way to reduce your tax bill, but you should understand changes to the structure and timings of these allowances.
This article explains what Capital Allowances are, what changed and what options you may want to consider when planning future investment.

A Quick Refresher: What Are Capital Allowances?

When your business buys something like equipment, tools or machinery that it will use for several years, you can usually deduct part or all of the cost from your profits before tax.

These deductions are called Capital Allowances.

Traditionally the main types have been:

• Full Expensing: Companies can deduct 100% of the cost of new, qualifying plant and machinery in the year of purchase
• Annual Investment Allowance (AIA): 100% relief up to £1 million per year for most UK businesses, including sole traders and partnerships
• Writing Down Allowances (WDA): Spreads the cost of an asset over time if it doesn’t qualify for any of the above

Different capital allowances exist because businesses invest in different ways. Which one applies often depends on what you buy, how your business is structured and how quickly you want tax relief.

1. Full Expensing

Full expensing is usually used by companies buying new plant and machinery for their own use.

It’s most helpful when:

• You want to reduce your tax bill in the same year you make a large investment
• Your company is profitable and can make use of the full deduction straight away
• The asset is new and qualifies under the full expensing rules

Because it gives 100% relief upfront, it’s often the first option to consider where it applies.

2. Annual Investment Allowance (AIA)

AIA is commonly used by smaller businesses, including sole traders and partnerships, as well as companies.

It’s often used when:

• You’re buying equipment, tools or machinery and want simple, immediate relief
• Your total qualifying spend is within the £1 million annual limit
• Your purchases include items that don’t qualify for full expensing

AIA is flexible and widely used because it applies to most everyday business assets.

3. Writing Down Allowances (WDA)

WDA is traditionally used as the fallback option.

It applies when:

• An asset doesn’t qualify for full expensing, AIA or any FYA
• The cost of an asset needs to be written off gradually over time
• A business has already used up its AIA limit

While slower, WDA ensures businesses still receive tax relief on long-term investments.

What’s Changed in 2026?

Two main Capital Allowance changes were announced that have taken effect in 2026:

• The Writing Down Allowance (WDA) dropped from 18% to 14%

From 1^st April 2026 for companies – and from 6^th April 2026 for unincorporated businesses – the main WDA rate fell from 18% to 14%, meaning it will take longer to claim back relief on the purchase.

This applies to most general plant and machinery that doesn’t qualify for Full Expensing or AIA.

The special rate pool for things like long-life assets or integral building features has not changed.

Example:

If your company bought £100,000 of qualifying equipment that did not qualify for AIA or Full Expensing:

• Under the previous 18% rate, you could claim £18,000 in the first year and then £14,760 in year two
• Under the new 14% rate, you would claim £14,000 in the first year and £12,040 in the next
• The continued lower rate would mean it would take longer to claim back the cost of your investment

• A new 40% First Year Allowance (FYA)

From 1^st January 2026, a new 40% First Year Allowance has applied to main-rate plant and machinery that don’t qualify for full expensing.

It speeds up relief where AIA can’t be used and covers certain assets used for leasing and unincorporated businesses that don’t benefit from Full Expensing.

Example:

If you bought new qualifying machinery for £50,000 in February 2026 that didn’t qualify for AIA or full expensing, you’d now be able to claim:

• £20,000 (40%) immediately under the new FYA
• Then 14% on the remaining £30,000 in later years

This new option brings forward some tax savings that would otherwise take several years to realise.

• Full Expensing and AIA Still Applies

Full Expensing remains unchanged.  Companies buying new, qualifying plant and machinery can still deduct 100 percent of the cost in the year of purchase.

This remains one of the most generous and fastest forms of Capital Allowance where it applies.

Example:

A company buys new production equipment costing £120,000 that qualifies for Full Expensing.

• The full £120,000 is deducted from profits in that year
• At a 20% tax rate, this reduces the tax bill by £24,000 immediately

• Annual Investment Allowance (AIA) Still Applies

The Annual Investment Allowance (AIA) also continues unchanged.

AIA allows most UK businesses, including companies, sole traders and partnerships, to deduct 100% of the cost of qualifying plant and machinery in the year of purchase, up to an annual limit of £1 million.

For many small and medium-sized businesses, AIA remains the most commonly-used Capital Allowance. It applies to a wide range of everyday business assets, such as equipment, tools and machinery, and is often simpler to use than other reliefs.

Example:

A business buys qualifying equipment costing £75,000.

• The full £75,000 can be deducted from profits in the year of purchase using AIA
• This reduces the tax bill straight away, without needing to spread relief over future years

AIA is especially useful for businesses that do not qualify for Full Expensing, such as sole traders and partnerships, or for companies buying assets that fall outside the Full Expensing rules.

What does this mean for your business?

How much this matters depends on what kind of business you run and when you plan to invest.  Let’s look at some use cases that could help you think about these changes in practical terms.

Case 1: Incorporated manufacturing business planning a major purchase

You’re investing £200,000 in new machinery in 2026.

Options to consider:

• If the machinery qualifies for AIA, you can still deduct the full £200,000 immediately
• If it doesn’t qualify but is new, and used in your business, you may get 40% upfront using the new FYA, before claiming 14% annually on the balance later
• If you delayed until after April 2026, didn’t use the new FYA, and only got the 14% rate for WDA, your tax relief would take longer to come through.

Case 2: Business leasing out equipment

Your business leases out assets, on which you previously couldn’t claim Full Expensing.

Options to consider:

• The new 40% FYA could help soften that gap by giving more upfront relief on the leased equipment, making it more worthwhile for your leasing businesses to replace or expand its asset base.

Steps to Consider

You can’t change the rates, but you can plan around them. Here are some things to consider:

• Review your spending plans: If you expect to invest in new equipment, check whether it’s better to buy before or after the new rules start
• Check which reliefs apply: Some assets qualify for AIA or Full Expensing, while others may get WDA or the new FYA
• Model the tax timing: Simple cashflow planning can show whether claiming relief sooner or later helps you most
• If you lease assets, run a small company or are self-employed, it’s worth checking which combination of reliefs gives you the best overall benefit.

These changes give you more ways to manage your tax position around investment. Talking to your accountant early can help you make the right choices for your business.

Talk to the Team

At TTR Barnes, we know these rules can seem complex, but understanding them helps you make better decisions for your business.

If you’d like to explore how these changes could affect your upcoming plans, contact your usual adviser or email info@ttrbarnes.com. We’ll help you make sense of it all and plan ahead with confidence.