Capital allowances after Budget 2026: the 12% writing down allowance and the new 50% FYA

Limited Companies2 November 2026 · Concorde Company Solutions

The Budget cut the main pool writing down allowance for the second time in two years. From April 2027 it falls from 14% to 12%, which sounds small but compounds over the life of an asset. At the same time, the first year allowance for companies rises to 50%. Here is how the pieces fit together for a small business, and where the change actually bites.

What has changed

• Main pool writing down allowance (WDA): 14% → 12% from 1 April 2027 (corporation tax) and 6 April 2027 (income tax). The main rate was 18% until April 2026, so it has dropped a third in two years.
• Main rate first year allowance (FYA): 40% → 50% for expenditure incurred on or after 1 January 2027. Corporation tax only.
• Annual Investment Allowance (AIA): unchanged at £1 million. Full expensing (100% in year one for new plant and machinery bought by companies) also continues.
• Special rate pool: unchanged at 6%. Integral features, long-life assets and cars over 50g/km still sit here.
• A new anti-avoidance rule tightens the definition of a finance lease for lease-and-leaseback arrangements, with effect from 28 October 2026.

Why most small businesses will barely notice

The WDA only matters for spending that does not get relief in full up front. Because the £1 million AIA remains, a Garforth engineering firm buying £60,000 of machinery, or a tradesperson buying a £35,000 van, still deducts the whole cost from profits in the year of purchase. Nothing enters the main pool. The same goes for computers, tools, fixtures and most equipment. We explained how AIA works in our capital allowances guide.

The 50% FYA is in the same category: smaller companies already get 100% through AIA or full expensing, so the increase is really aimed at larger businesses whose spend exceeds £1 million and at UK leasing companies, which cannot use full expensing.

Where the cut does bite

Cars. Cars are excluded from AIA and full expensing, so they are the single most common main pool asset for a small company. A £30,000 petrol or hybrid car with emissions of 50g/km or less goes into the main pool. At 18% (the rate before April 2026) the first year's allowance was £5,400; at 12% it is £3,600. Over five years the business will have written off around 47% of the cost instead of 63%. Zero-emission cars still get a 100% FYA, which widens the gap between electric and petrol company cars even further — something we touched on in our post about company car tax for directors.

Existing pool balances. If you already have a main pool balance carried forward — perhaps from cars or from assets bought before AIA was available — that balance now unwinds at 12% a year. There is nothing to do about it; it simply means relief arrives more slowly.

Partly private assets. Sole traders who use an asset partly privately claim allowances in a single-asset pool, restricted for private use. If the asset would have qualified for AIA the timing is irrelevant, but a sole trader's car is still a 12% asset.

Timing and planning

The honest answer is that for most clients the WDA cut is a slow leak rather than a sudden hit. The decisions it genuinely affects are:

1. Company car purchases. If a petrol or hybrid company car is on the cards, buying before 1 April 2027 secures one year at 14%. Against that, a zero-emission car gets 100% in year one and a far lower benefit in kind — the tax case for electric is stronger than ever.
2. Large capital programmes. A business spending over £1 million in a year should look at full expensing versus the 50% FYA, and at whether assets can be brought within AIA by careful allocation.
3. Accounting period straddles. Where a company's year straddles 1 April 2027, the WDA is time-apportioned between 14% and 12%. The effect is small but it needs to be in the computation.

For everyone else, the right move is to keep making commercial buying decisions and let us make sure every pound of qualifying spend is claimed in the right pool. We review capital allowances as part of every set of accounts for our Leeds and West Yorkshire clients — if you have a purchase in mind and want to know how the relief will work, ask before you sign.

This is general information, not advice for your circumstances. If you'd like it applied to your situation, get in touch — the first chat is free.

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