By Jodh Mehmi, Mehmi Financial Group
This article is general information as of 7 November 2026, not tax or legal advice. Proposed measures can change before they become law. Confirm how any rule applies to you with a qualified accountant or tax adviser.
The UK has changed how quickly businesses can write off plant and machinery, and further changes are planned. These rules affect cash flow for any business planning to invest, including unincorporated businesses and businesses that buy assets to lease out.
The 40% first-year allowance (from 1 January 2026)
GOV.UK lists a 40% first-year allowance for qualifying plant and machinery purchased after 1 January 2026. HMRC's policy paper explains that this FYA has fewer restrictions than other FYAs, to encourage investment where those are not available, such as assets bought for leasing and by unincorporated businesses. The same measure reduced the main rate writing-down allowance (WDA) from 18% to 14%.
Planned change: 50% FYA and 12% WDA
As announced at Budget 2026, HMRC's policy paper states that:
- the main rate FYA will increase from 40% to 50% for expenditure incurred from 1 January 2027;
- the main rate WDA will fall from 14% to 12% for chargeable periods beginning on or after 1 April 2027 (Corporation Tax) and 6 April 2027 (Income Tax);
- legislation will be introduced in Finance Bill 2026-27.
Until that legislation passes, treat the 2027 rates as planned rather than final.
What this means for cash flow
A higher first-year allowance brings more of the tax relief into the year you invest, while a lower WDA slows relief on the remaining pool. For businesses timing a large purchase, the date the expenditure is incurred can matter. Speak to your accountant before moving a purchase date for tax reasons.
Making Tax Digital for Income Tax
Separately, GOV.UK states that from 6 April 2026 sole traders and landlords must use Making Tax Digital for Income Tax if their annual income from self-employment and property is over £50,000. Lenders often ask for up-to-date accounts, and digital records can make those easier to produce.
Financing in the UK
Mehmi Financial Group arranges business financing in the UK, such as business loans and working capital, through third-party lenders. We do not arrange equipment financing in the UK and we do not give tax advice. See business financing options.
Frequently asked questions
What is the UK first-year allowance in 2026?
GOV.UK lists a 40% first-year allowance for qualifying plant and machinery purchased after 1 January 2026.
Is the FYA going up to 50%?
HMRC says the main rate FYA will rise from 40% to 50% for expenditure incurred from 1 January 2027, with legislation in Finance Bill 2026-27.
What is the new writing-down allowance rate?
The main rate WDA fell from 18% to 14%, and HMRC plans to reduce it to 12% from April 2027.
Can unincorporated businesses claim the 40% FYA?
HMRC says the FYA was designed for cases where other FYAs are not available, such as unincorporated businesses and assets bought for leasing.
Who must use Making Tax Digital for Income Tax?
From 6 April 2026, sole traders and landlords with self-employment and property income over £50,000.
Is this tax advice?
No. It is general information as of 7 November 2026. Confirm with a qualified UK tax adviser.