- At Budget 2025, the government announced that it will reduce the main rate of writing-down allowance (WDA) for plant or machinery from 18% to 14% and introduce a new 40% first year allowance (FYA) for new expenditure on eligible assets, including most plant or machinery for leasing, but excluding second-hand assets, cars, and assets leased overseas.
- The government had previously announced that it recognises the case for extending full expensing (100% FYAs) to assets bought for leasing and will explore making this change when fiscal conditions allow. The 40% FYA is a step towards this and will also benefit other businesses that cannot benefit from full expensing, including partnerships of individuals and other unincorporated businesses.
- In the autumn 2024 Corporate Tax Roadmap, the government also committed to providing businesses with greater clarity on what qualifies for capital allowances, considering options to simplify the capital allowances system, and consulting on the tax treatment of predevelopment costs.
- Timing: the 40% FYA applies to expenditure incurred on or after 1 January 2026. The reduced rate of WDA applies from 1 April 2026 for corporation tax and 6 April 2026 for income tax. The consultation on predevelopment costs has been postponed following the Court of Appeal judgment in Orsted West of Duddon Sands (UK) and others v HMRC.
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