Capital Allowances Changing April 2026 — WDA Drops from 18% to 14%

What Is Changing

From April 2026, the government is making two significant changes to capital allowances for businesses:

1. Main pool writing-down allowance (WDA) drops from 18% to 14% — Assets in the main pool will be written off more slowly
2. New 40% first-year allowance (FYA) for main-rate assets — Qualifying new plant and machinery gets 40% relief in year one

The Annual Investment Allowance (AIA) remains at £1,000,000, and full expensing for companies continues unchanged. But for assets that fall outside AIA or full expensing — which is more common than you might think — these changes matter.

Understanding the Current System

Capital allowances let your company deduct the cost of business assets from taxable profits. There are several different rates and categories:

Why the WDA Still Matters

You might think the WDA is irrelevant given that AIA covers the first £1 million of spending and full expensing gives 100% relief. But the WDA applies in several common situations:

• Cars — Most cars do not qualify for AIA or full expensing. They go into the main pool (petrol/diesel with CO2 51-110 g/km) or special rate pool (CO2 above 110 g/km). Only zero-emission cars get 100% FYA.
• Assets brought into business use — Second-hand assets may not qualify for full expensing
• Existing pool balances — Assets already in the pool from prior years continue to be written down at the WDA rate
• Mixed-use assets — Assets with some private use may be restricted

For a director who bought a company car or has legacy assets in the pool, the WDA reduction from 18% to 14% means slower tax relief.

The Impact on Your Existing Main Pool

If your company has assets already sitting in the main pool, the annual deduction shrinks immediately from April 2026.

Worked Example: £20,000 Main Pool Balance

Over five years, you claim £1,993 less in allowances on a £20,000 pool. At 25% corporation tax, that is £498 more tax paid over the period. The money is not lost — you eventually claim the full amount — but the relief is spread over a longer period.

The New 40% First-Year Allowance

To offset the WDA reduction, the government is introducing a permanent 40% first-year allowance for qualifying new main-rate plant and machinery. This is separate from AIA and full expensing.

What Qualifies

The 40% FYA applies to:

• New (not second-hand) plant and machinery
• Assets that would normally go into the main pool
• Purchased for use in the trade

How It Works

In the year of purchase, you claim 40% of the cost. The remaining 60% goes into the main pool and is written down at 14% per year.

Worked Example: £10,000 New Equipment

Under old rules (18% WDA, no FYA):

Under new rules (40% FYA + 14% WDA):

The new system actually gives you £425 more relief over five years thanks to the large first-year deduction. More importantly, you get £4,000 of relief in year one compared to £1,800 — a significant cash flow advantage.

Should You Buy Equipment Before or After April 2026?

This is the question every director is asking. The answer depends on your situation.

Buy Before April If:

• You have assets in the main pool and want one more year at the 18% WDA rate
• You are buying second-hand equipment that will not qualify for the new 40% FYA
• You need the AIA and are close to the £1m limit (AIA is unchanged, so this is rarely relevant for small companies)

Buy After April If:

• You are purchasing new plant or machinery — the 40% FYA gives better first-year relief than the current 18% WDA
• Cash flow matters — the larger upfront deduction under the new regime improves your year-one position
• You would use full expensing anyway — if your asset qualifies for full expensing (100%), the WDA change is irrelevant

The Honest Answer for Most Small Companies

If your total capital spending is under £1 million (which covers virtually all small limited companies), you are likely claiming AIA or full expensing on new purchases anyway. The WDA change mainly affects:

1. Company cars (a genuine impact — consider going electric for 100% FYA)
2. Existing pool balances (nothing you can do about this)
3. Second-hand asset purchases (no 40% FYA available)

For new equipment, the 40% FYA is a net positive compared to the old 18% WDA. Do not rush a purchase just to get the old rate.

Company Cars: The Biggest Impact

The most common scenario where a small company director feels the WDA change is company cars. Cars are excluded from AIA and (for most models) from full expensing.

A petrol or diesel company car costing £30,000 in the main pool will now take even longer to write off. At 14%, it takes roughly 15 years to claim 90% of the cost, compared to about 12 years at 18%.

This makes electric vehicles — which still qualify for 100% first-year allowance — even more attractive relative to petrol and diesel cars. See our guide on electric cars through a limited company for the full analysis.

Key Dates

• 1 April 2026 — New WDA rate of 14% and 40% FYA take effect for companies (accounting periods starting on or after this date)
• 6 April 2026 — New rates take effect for unincorporated businesses
• Your next accounting period — The change applies from the start of the first accounting period beginning on or after 1 April 2026

What to Do Now

1. Check your main pool balance — If it is significant, understand that annual relief will reduce by about 22% (from 18% to 14%).
2. Defer new equipment purchases if possible — The 40% FYA from April 2026 gives better first-year relief than the current 18% WDA for new assets.
3. Accelerate second-hand purchases — Second-hand assets will not qualify for the 40% FYA, so buying before April locks in the higher 18% WDA rate for year one.
4. Consider going electric — If a company car is on the horizon, zero-emission vehicles still get 100% relief in year one.
5. Review your AIA position — If you are already claiming AIA on everything (most small companies are), the WDA change may not affect you at all.

AccountsOS categorises your asset purchases and calculates capital allowances automatically in your financial reports, so your corporation tax position is always up to date.

Frequently Asked Questions

Does the WDA change affect the Annual Investment Allowance?

No. The AIA remains at £1,000,000 per year and gives 100% relief in the year of purchase. If your total capital expenditure is under £1m (which covers the vast majority of small companies), you can still claim full relief on qualifying assets immediately. The WDA only affects assets that fall outside AIA, such as cars and existing pool balances.

What is the difference between full expensing and the new 40% first-year allowance?

Full expensing gives 100% relief in year one for new main-rate plant and machinery purchased by companies. The new 40% FYA gives 40% relief in year one with the remaining 60% written down at 14% per year. In practice, if an asset qualifies for full expensing, you should claim that instead. The 40% FYA is mainly relevant for assets that fall outside full expensing eligibility.

Should I buy a company car before April 2026 to get the 18% rate?

The difference is marginal. A £25,000 car gets £4,500 relief in year one at 18% versus £3,500 at 14% — a £250 corporation tax difference. If you were buying the car anyway, the timing does not matter much. The far bigger question is whether to go electric (100% relief in year one) or petrol/diesel (14% over many years).

Do sole traders and partnerships face the same changes?

Yes. The WDA reduction from 18% to 14% and the new 40% FYA apply to all businesses, not just companies. For sole traders and partnerships, the change takes effect from 6 April 2026 rather than 1 April 2026.