A worked example
The company buys £120,000 of new machinery and two new vans for £70,000 in its year to 31 March 2028. The vans are built mainly to carry goods, so they are not cars for capital allowances. It makes no other claims for the Annual Investment Allowance, and its taxable profit stays above £250,000 after the deduction, so each pound of relief saves 25p of corporation tax.
Difference is after the Budget minus before.
| Year to 31 March 2028 | Before the Budget | After the Budget | Difference |
|---|---|---|---|
| Qualifying spend: machinery £120,000 and vans £70,000 | £190,000.00 | £190,000.00 | £0.00 |
| Deducted in the year (Annual Investment Allowance or full expensing, 100%) | £190,000.00 | £190,000.00 | £0.00 |
| Corporation tax saved in the year, at 25% | £47,500.00 | £47,500.00 | £0.00 |
The two rates that changed apply only where the 100% reliefs do not:
| For reference, on the same £190,000 | Before | After | Difference |
|---|---|---|---|
| First-year allowance on new main-rate assets (40%, now 50%) | £76,000.00 | £95,000.00 | +£19,000.00 |
| Reduction in corporation tax in year one, at 25% | £4,750.00 | ||
| Main pool writing-down allowance alone (14%, now 12%) | £26,600.00 | £22,800.00 | −£3,800.00 |
| Increase in corporation tax in year one, at 25% | £950.00 |
So the higher first-year allowance cuts the year-one corporation tax bill by £4,750, and the lower writing-down allowance adds £950 to it.
The lower writing-down allowance also applies to any balance already in a company's main pool: on a £100,000 balance, the yearly allowance falls from £14,000 to £12,000.
When it takes effect
- The 50% first-year allowance: spending on or after 1 January 2027.
- The 12% writing-down allowance: from 1 April 2027 for companies (corporation tax) and 6 April 2027 for the self-employed and partnerships (income tax).
- Both are to be legislated in Finance Bill 2026-27. Full expensing and the Annual Investment Allowance carry on as before.
Who it doesn't affect
A company whose spending on plant and machinery is all covered by full expensing or the £1 million Annual Investment Allowance gets the same relief as before, in the year it spends. The writing-down allowance cut reaches spending outside those reliefs (cars, for example, which neither covers) and balances already in the main pool.
Where this comes from
- Budget 2026 (HM Treasury), policy decisions, "Business and enterprise taxation": the main rate first-year allowance raised to 50% for spending from 1 January 2027, and the main rate writing-down allowance cut to 12% from 1 April 2027 (corporation tax) and 6 April 2027 (income tax)
- Budget 2026: Overview of Tax Legislation and Rates (HMRC), section 1.42: the 50% main rate first-year allowance and the 12% main rate writing- down allowance
- Budget 2026 OOTLAR, Annex A, Corporation Tax allowances and reliefs: main rate 14% in 2026/27 and 12% in 2027/28, special rate 6%, Annual Investment Allowance £1 million, full expensing 100%
- Budget 2026 (HM Treasury), "Making fair choices on revenue raising": full expensing maintained and the corporation tax rate capped at 25%
- Budget 2026 (HM Treasury), Table 6.1 (policy decisions): the writing-down allowance line; no line changes the Annual Investment Allowance or full expensing
- Annual Investment Allowance (GOV.UK): £1 million a year, not available on cars
- Full expensing (GOV.UK): 100% for companies on new and unused plant and machinery, not cars
- The 40% first-year allowance (GOV.UK): new main-rate plant and machinery bought from 1 January 2026, not cars
- Writing down allowances: rates and pools (GOV.UK): main pool 14% from 1 April 2026 for corporation tax
- HMRC Capital Allowances Manual CA23510: a vehicle built mainly to carry goods is not a car
- Budget 2025: Overview of Tax Legislation and Rates (HMRC), section 1.30: corporation tax at 25% and 19% for the year from 1 April 2027
Every figure on this page comes from the Budget documents published on GOV.UK on , and was checked by Lewis Back ACA. Last updated . It is general information, not advice on your own position.