At the Autumn Budget 2025, the government announced the introduction of a 40% FYA for new main rate plant and machinery (P&M) incurred on or after 1 January 2026. The intention is to plug gaps in the existing framework of accelerated capital allowances, including the 100% FYA for main rate P&M (full expensing) and the annual investment allowance (AIA). 

For example, the 40% FYA is: 

• Available more widely - ie, to sole traders and partnerships, including partnerships with corporate members - than full expensing and the AIA. 
• Subject to a more limited exclusion for P&M for leasing than full-expensing. Briefly, the general exclusion from FYA for P&M for leasing is removed, except for overseas leasing.
• Unrestricted in terms of the amounts that can be claimed, unlike the AIA which is subject to an annual cap of £1m.   

However, to ensure the new FYA is “introduced in a fiscally sound way”, the government also announced a cut in the main rate of WDA at the Autumn Budget 2025. From April 2026, the main rate WDA will be cut from 18% to 14%, adversely affecting the estimated 650,000 businesses that have qualifying expenditure not covered by accelerated capital allowances.  

Those businesses that lose out as a result of the Budget changes may question whether this is within the spirit of the government’s corporation tax roadmap, published in October 2024. Having acknowledged that the capital allowances regime had suffered from “significant instability and unpredictability in recent years”, the government promised to maintain the “core structure” of the system and set out only modest ambitions for change, including “exploring an extension of full expensing to assets that are bought for leasing or hiring”. The introduction of the new FYA could further complicate an already confused picture when it comes to claiming accelerated capital allowances. 

The draft legislation providing for the new 40% FYA and the cut in the main rate WDA is included in Finance Bill 2025-26. Changes may be made to the draft legislation before it becomes law.  

 

Further information 

• Autumn Budget 2025 | ICAEW