The new financial year will see many of the proposed changes announced in the Autumn Budget enacted, impacting businesses across the country.
As you consider your tax strategy for 2025/26, whether already planned in part or something on your agenda in the coming weeks, capital allowances should not be overlooked.
Capital allowances available to businesses
While some of the changes made in the Autumn Budget could present financial challenges for some business owners, capital allowances can provide a means to reduce taxable profits.
Here are just a few of the capital allowances you can take advantage of in the 2025/26 tax year:
Full expensing
This is available to companies investing in new, qualifying plant and machinery, and allows for 100 per cent of the cost to be deducted in the year of purchase.
This relief applies to main rate assets only (machinery, equipment), and does not apply to long-life or special rate assets.
Annual Investment Allowance (AIA)
The AIA offers 100 per cent relief on qualifying capital expenditure, up to £1 million per year, and is available to companies, sole traders and partnerships.
First-Year Allowances (FYA)
FYA allows 100 per cent relief on certain environmentally beneficial or energy-efficient equipment and, crucially, does not reduce the available AIA. However, FYA must be claimed in the year of purchase.
Qualifying assets include electric cars with zero CO2 emissions and equipment for electric vehicle charging points.
Writing Down Allowances (WDA)
WDA can be used when assets do not qualify for AIA or full expensing, allowing you to deduct a percentage of the value of certain items from your profits each year.
The tax relief available depends on which ‘pool’ the item falls into – either, main rate, or special rate.
- Main rate – 18 per cent per year (plant and machinery) on a reducing balance basis.
- Special rate – 6 per cent per year (integral features, long-life assets).
In short, capital allowances can give your business a real financial boost, but only if the claims are completed accurately.
It is easy to overlook what qualifies, and to make mistakes that invite HMRC’s attention, but with expert support and guidance the process can be straightforward and financially rewarding.
To talk to our friendly team of professionals about your eligibility for capital allowances, and claiming tax relief on expenditure in 2025/26, contact us today.
