New 40% FYA and reduction in WDAs - Landlords Financial | Bookkeeping Services Manchester

A new 40% first-year allowance (FYA) is to be introduced from April 2026. It will apply to main rate expenditure on new assets, excluding cars. Both companies and unincorporated business will be able to benefit. The new allowance will be available from 1 January2026 for corporation tax and from 6 January 2026 for income tax.

From 1 April 2026 for corporation tax and 6 April 2026 for income tax the main rate of writing down allowance (WDA) is reduced from 18% to 14%. A hybrid rate will apply where the chargeable period spans the date of the rate change.

Utilising the new allowance

Companies have a range of options for relieving main rate expenditure in the year in which it is incurred. The annual investment allowance (AIA) provides immediate relief for qualifying expenditure on new and used assets and applies to both qualifying main rate and special rate expenditure. However, it is subject to an annual limit of £1 million.

Companies can also take advantage of full expensing to deduct qualifying expenditure on new main rate assets. Full expensing is available without limit.

Like full expensing, the new 40% FYA applies to qualifying expenditure on new main rate assets. As full expensing can be used without limit, the 40% FYA will only be of use to a company where the expenditure is outside full expensing. This will be the case, for example, for assets used for leasing.

The new 40% FYA is also available to unincorporated businesses.

The cash basis is the default basis of accounts preparation for traders. It allows capital expenditure to be deducted when computing profits unless the expenditure is of a type for which such a deduction is specifically prohibited. Cars fall into this category. Where a deduction is not allowed, capital allowances can be claimed (unless simplified expenses have been used to claim relief for mileage costs).

Capital allowances are of more relevance where the trader uses the accruals basis. Unincorporated businesses can access the AIA, but do not benefit from full expensing. The new 40% FYA will be useful to them where the AIA has been used up, and also where expenditure qualifies for the new 40% FYA but not the AIA.

Where the 40% FYA is claimed, the balance of the expenditure is relieved by main rate WDAs.

Reduction in the WDA

The rate of WDA on main rate expenditure drops from 18% to 14% from 1 or 6 April 2026. This will lengthen the period over which relief is given for expenditure on main rate assets. It wi

full expensing on qualifying main rate expenditure or, from January2026, where the new 40% FYA is claimed.

Cars, other than new zero emission cars, are not eligible for any of the FYAs. Low emission cars are allocated to the main pool. The reduction in the main rate WDA will mean that it will take businesses longer to fully relieve the cost of main rate cars than is currently the case.

Where the chargeable period spans the date on which the rate changes, a hybrid rate will apply. This will reflect the number of days in the chargeable period before the rate change and the number of days on or after the rate change. For example, where a company prepares accounts to 30 June, the hybrid rate for the period to 30 June 2026 is 17%.

New 40% FYA and reduction in WDAs - Landlords Financial | Bookkeeping Services Manchester

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