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Capital Allowances Reward New Assets And Slow Relief On The Rest

ended 29. July 2026

Capital allowances have never really been about how much relief a business gets. Nearly every pound of qualifying spend is relieved in the end. What moves is when, and two changes now in force move it in opposite directions. Only one of them has any conditions attached.

A new 40% first-year allowance, taken upfront in the year of purchase, applies to main rate plant and machinery where the expenditure is incurred on or after 1 January 2026. It is tightly fenced: the asset must be unused and not second-hand, it cannot be a car, and it has to be main rate expenditure. The writing down allowance on the main pool, the percentage written off each year from a running balance that carries forward whatever was not relieved last time, fell from 18% to 14% on 1 April 2026 for Corporation Tax payers and 6 April 2026 for Income Tax payers. The cut comes with no such conditions. It applies to the whole main pool, including second-hand assets and every pound of written-down value carried forward from earlier years. Smaller firms often cover a year's equipment spend with the £1 million Annual Investment Allowance at 100%, so the lower rate bites hardest on old pools and on spend the first-year allowances never reach.

On 27 July 2026 HMRC added both changes to GfC5, the Guidelines for Compliance it publishes on where plant and machinery claims go wrong, which is a tax authority saying in advance where it expects to find mistakes. The catch is who each change reaches. A firm buying new equipment gets the sweetener. A firm buying used equipment, or simply writing down a pool built up years ago, gets only the cut. HMRC's own costing says the lower rate “still enables full relief for the expenditure” and names those affected as including businesses “with pools of historic main rate expenditure”, while scoring the package as raising £1,505 million in 2027 to 2028 and around £1.5 billion a year after that. There is a second trap: a business whose accounting period straddles the change uses neither 18% nor 14%, but must work out a blended hybrid rate, and GOV.UK's own worked example, a company year running 1 January to 31 December 2026, comes out at 14.99%. The person really caught is the owner-manager who buys a used van, has a year end that straddles April, and has nobody watching which rate now applies.

  1. HMRC says the lower rate still gives full relief in the end, so this is a change to timing rather than to the amount. Is slowing relief on every existing pool a fair way to fund a 40% allowance for new assets, or a quiet increase in the tax bill of firms that have already invested?
  2. The 40% allowance excludes second-hand assets and cars outright, so a business buying a used van or a refurbished machine gets none of it and all of the rate cut. Who does that hit hardest, and what does it do to the second-hand equipment market?
  3. What should a business actually check before its next return, given that any accounting period that runs through 1 April 2026 for companies, or 6 April for sole traders and partnerships, needs a blended hybrid rate? Do you have a client whose investment plans this would change? If so, please give as much colour and detail as possible.

2 responses from the Newspage community

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Editor
Harvey Dhillon
Founder & CEO at Zmartly
Picture a builder buying a used van. The new 40 per cent allowance only covers new, unused kit, so they get none of it and all of the slower write-off on everything else they own. The relief goes to the firm buying new, and the delay lands on the firm that already invested. This is a change to timing, not to the amount. On £100,000 still to write down, this year's deduction falls from £18,000 to £14,000, so £4,000 more profit is taxed now. Most small firms will never notice the 40 per cent, because the £1 million Annual Investment Allowance already gives 100 per cent on a year's spend, and it is the only 100 per cent relief that reaches second-hand. Above that, the tax system now tilts every buyer towards new. So before your next return, start with your year end. Any period crossing 1 April 2026 for companies, or 6 April for sole traders and partnerships, needs a blended rate, and GOV.UK's own calendar-year example comes out at 14.99 per cent. Nobody guesses a number like that.
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Editor
Nouran Moustafa
Practice Principal & IFA at Roxton Wealth
Calling this merely a timing change understates its real-world impact. For a cash-constrained business, receiving tax relief years later rather than now can determine whether it can replace equipment, hire or invest. The 40% allowance rewards businesses able to buy new assets, while firms relying on used vans, refurbished machinery or historic pools receive none of the sweetener but all of the slowdown. That will hit smaller firms and asset-heavy trades hardest and could distort decisions away from perfectly serviceable second-hand equipment.

Before filing, businesses should check the purchase date, whether each asset was new or used, whether it belongs in the main or special-rate pool, what other allowances are available and whether the accounting period crosses the April change. The hybrid rate is easy to miss. This is not a DIY calculation: the accountant should reconcile the asset register, invoices and brought-forward pools before the return is submitted.