Capital allowances changes: 2026 rates explained

What changed in capital allowances in 2026

The main capital allowances change in 2026 is a cut in the main rate of writing down allowance from 18% to 14%, which took effect on 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax. If an accounting period includes the date the rate changed, a hybrid rate has to be worked out for that period.

Whether a business may have capital allowance claims worth reviewing depends on what it has bought, built or improved, and on how each item has been treated in past returns. The sections below cover the rates in force now, how the hybrid rate is worked out, vehicles, Corporation Tax and building works.

Capital allowance rates in force now

The main rate of writing down allowance is now 14%, down from 18%.

Full expensing and the 50% first year allowance are first year capital allowances that a company subject to Corporation Tax may be able to claim on qualifying plant or machinery where the expenditure was incurred on or after 1 April 2023. ^[2] To qualify, the plant or machinery must be new and unused, and it must not be a gift, a car, bought to lease to someone else (unless it is background plant or machinery within a building) or purchased in the accounting period the business activity ceases.

For main rate plant or machinery, all of the cost can be deducted under full expensing when working out taxable profits. For special rate plant or machinery, half of the cost can be deducted under the 50% first year allowance, and the balance is added to the special rate pool in the following accounting period to claim writing down allowances.

Expenditure on special rate plant or machinery may qualify for the 100% annual investment allowance. The guide to the Annual Investment Allowance covers that allowance in detail.

Working out a hybrid rate for a period spanning April 2026

The hybrid rate is based on how much of the accounting period falls before the rate changed and how much falls after. The steps are:

1. Count the days in the whole accounting period.
2. Divide the days before the change by the total, then multiply by 18.
3. Divide the days from the change, including the day it changed, by the total, then multiply by 14.
4. Add the two results, rounding up to 2 decimal places if the number has more than 2 decimal places.

For example, a company that pays Corporation Tax with an accounting period from 1 January 2026 to 31 December 2026 has 90 days before 1 April 2026 and 275 days from 1 April 2026, including 1 April 2026. Its hybrid rate for that period is 14.99%. ^[1]

The hybrid rate is then used to work out the writing down allowances that can be claimed. More calculations are needed to adjust the amount of writing down allowances if the accounting period is more or less than 12 months.

Vehicles and the 2026 rate change

A car cannot be claimed under full expensing or the 50% first year allowance, although other vehicles may qualify for full expensing. For a company, the first question on a vehicle is therefore whether it counts as a car, because a van or other vehicle that meets the same conditions as other plant or machinery could be considered for full expensing.

The guide to the tax treatment of company cars covers how cars are handled, including electric cars. For sole traders and partners, the Self Assessment helpsheet HS252 covers cars, plant and machinery used only partly for business purposes, and accounting periods that differ from the tax year. ^[3]

Corporation Tax rates alongside the allowances

The rate of Corporation Tax a company pays depends on how much profit it makes. Since 1 April 2023, there has been no single Corporation Tax rate for non-ring fence profits.

The main rate for non-ring fence profits is 25% for profits above £250,000, and the small profits rate is 19% for companies with profits of £50,000 or less. ^[4] Companies with profits between £50,000 and £250,000 pay tax at the main rate reduced by marginal relief, which gives a gradual increase in the effective Corporation Tax rate.

There are different Corporation Tax rates for ring fence companies, which make profits from oil extraction or oil rights in the UK or UK continental shelf.

Capital works compared with capital allowances

Capital allowances are the tax reliefs claimed on capital spending, such as the first year allowances on plant or machinery described above. Spending on capital works, such as the purchase, construction or renovation of a structure, may instead fall under the structures and buildings allowance.

The structures and buildings allowance is claimed only on construction costs, which include design fees, site preparation, construction works, renovation, repair and conversion costs, and fitting out works. All construction contracts must have been signed on or after 29 October 2018, and the structure must not have been used as a residence the first time it was used or during the period being claimed for, must be used for a qualifying activity and must have an allowance statement.

The rate is 3% a year from 1 April 2020 for a business subject to Corporation Tax and from 6 April 2020 for one subject to Income Tax. Costs which also qualify for plant and machinery allowances cannot be claimed under the structures and buildings allowance. ^[5]