Budget 2025: writing down allowance reduced to 14%

Jacob Grattage, Reporter, Business & Accountancy Daily. Croner-i

Writing down allowance cut will hit businesses looking to invest.

Main rate of writing down allowance cut to 14% from April 2026, and 40% first-year allowance introduced from January 2026.

From April 2026 the main rate writing-down allowances for corporation tax and income tax will be reduced from 18% to 14%.

Rachel Reeves has confirmed the government will decrease the main rate of writing down allowances due to the ‘need to incentivise future investment and encourage growth in the UK economy’.

The measure reduces the rate of writing-down allowance (WDA) on the main pool of plant and machinery from 18% to 14% per year which still enables full relief for the expenditure.

A first-year allowance of 40% for main‑rate assets will also be introduced from the new year, but cars, second-hand assets, and assets for leasing overseas will not be eligible.

The measure reduces the rate of writing-down allowance (WDA) on the main pool of plant and machinery from 18% to 14% per year which still enables full relief for the expenditure.

For businesses whose chargeable period spans 1 April (corporation tax) or 6 April (income tax), a hybrid rate will have effect.

The hybrid rate will be based on the proportion of a chargeable period falling before the change date and the corresponding proportion falling after the change date.

The new FYA will be available for expenditure incurred from 1 January 2026.

The reduction in the writing down allowance could deter longer term investment, impacting the level of tax relief available to businesses.

Derry Crowley, CEO at Xeinadin said: ‘The reduction in the writing down allowance limits businesses looking to invest in equipment in order to remain competitive. Removing £1.5bn in relief at a time when firms are already managing tight margins could make long term investment harder, not easier.

‘But investment doesn’t have to stall. Firms that take a longer-term view can still find routes to growth, even in a tighter fiscal environment.’

Graeme Hills, head of tax at Duncan & Toplis, said: ‘It should be said that lowering the writing down allowance for businesses may not be offset by the additional 40% first year allowance, as this will only benefit businesses in their first year.

‘Businesses should model what this means for their investment timelines and tax positions, rather than assuming the headline first-year figure will compensate across the board.

‘By and large, the Budget was surprisingly positive news for businesses and taxpayers.’

This measure is expected to raise £1.5bn in 2026-27, rising to £1.5bn in 2027-28.