HM Revenue and Customs published a tax information and impact note on 29 October 2026 confirming changes to capital allowances that will affect businesses investing in plant and machinery, including a rise in the main rate first-year allowance and a cut to the main rate writing-down allowance.
According to HMRC, the measure increases the rate of first-year allowance (FYA) available for qualifying main rate expenditure from 40% to 50%, while reducing the main rate writing-down allowance (WDA) from 14% to 12% per year. The special rate WDA remains unchanged at 6%.
Why the change is being made
HMRC said the measure aims to support business investment by giving greater upfront tax relief to unincorporated businesses and those investing in plant and machinery for leasing, while also contributing to the government's objective of fiscal consolidation through the reduction in the main rate WDA. The note explains that the 40% FYA, introduced at Budget 2025, has fewer restrictions than full expensing and therefore particularly benefits unincorporated businesses and leasing investment.
When the rates change
The new WDA rate will apply for chargeable periods beginning on or after 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax. A hybrid rate of WDA will apply where a chargeable period begins before, and ends on or after, those dates. The increased FYA rate will be available for expenditure incurred from 1 January 2027.
Legislation and impact
HMRC said legislation will be introduced in Finance Bill 2026-27 to amend the Capital Allowances Act 2001, substituting 14% with 12% in section 56(1) and increasing the FYA rate from 40% to 50% in section 52(3). The note states the measure is expected to have a negligible impact on the administrative burdens of the 600,000 incorporated and unincorporated businesses who claim main rate WDA and the main rate FYA, with one-off costs limited to familiarisation and updating software.
HMRC added that for many businesses, main rate writing-down allowances are not relevant to future expenditure as this is covered by the annual investment allowance and full expensing.
Key facts - Main rate FYA rises from 40% to 50% for expenditure incurred from 1 January 2027 - Main rate WDA falls from 14% to 12% for chargeable periods from 1 April 2027 (Corporation Tax) and 6 April 2027 (Income Tax) - Special rate WDA remains at 6% - Measure expected to affect 600,000 incorporated and unincorporated businesses - Legislation to be introduced in Finance Bill 2026-27 - HMRC estimates IT system changes to support the policy will cost £3.3 million
Source: HM Revenue and Customs, Reduce the main rate writing-down allowance and increase the main rate first-year allowance, published 29 October 2026 (GOV.UK, full document: GOV.UK). See also: Funding & Grants and how to send us your news.