What Are Writing Down Allowances?
When a business buys a new piece of plant and machinery, it can claim tax relief through capital allowances. If the item doesn’t qualify for immediate tax relief through Full Expensing or Annual Investment Allowance (AIA), then it is claimed through Writing Down Allowances (WDAs). WDAs are a way to claim tax relief on the expenditure over a period of time. This starts off in a pool, and each year a fixed percentage is deducted from that pool as the pot gradually gets smaller over time.
The Pool System
The capital allowances system splits different types of expenditure into various pools:
Main Pool: for most plant and machinery, which had a WDA rate of 18% pre-Autumn Budget 2025, but from April ’26 will be decreasing to 14%.
Special Rate Pool: WDAs historically stood at 6% annually, and the latest budget announcements didn’t alter that figure.
How WDAs Are Calculated
The calculation of UK Writing Down Allowances is quite straightforward; they use a reducing balance formula. Coming into each new accounting period, businesses claim a tax deduction that’s 100% of the initial year’s rate, multiplied by the starting pool balance. They deduct this from their taxable profits and knock down the pool balance accordingly.
Let’s say a company has £100,000 in its main pool, and the WDA rate is 14%. It would claim £14,000 as a tax deduction in the first year, and then the pool balance would drop to £86,000. Coming into the second year, the WDA would be calculated on this reduced amount (£86,000 x 14% gives £12,040), and so it goes.
A Change to Capital Allowances Announced in the Autumn Budget 2025
The government announced in 2025 that changes will be made to writing down allowance. It will reduce from 18% to 14% per annum, a change which will slow down the rate at which companies claim tax relief. This could potentially encourage businesses to bring forward investments to capitalise on the higher 18% rate that’s expiring in April 2026.
For the current and next tax years, a hybrid rate is to be so that corporations with accounting periods spanning the change dates will be eligible for an amalgamated rate that takes into account the different rates. For example, a company with a 31 December year-end will apply 18% for the three months prior to April 2026 and then switch to the 14% rate for the nine months afterward.
Implications for Businesses
The impact of this change forces important considerations in business investment decisions. Businesses in possession of substantial brought-forward main pool balances will see their tax relief slow down, and, accordingly, their cash flow and all-inclusive tax benefit will suffer.
For companies planning significant investments, the timing of those investments is now a key aspect to consider. Expenditures incurred before 1 April 2026, or before 6 April for income tax purposes, will benefit from the higher 18% rate, while expenditures in the years following will be subject to the reduced 14% writing down allowance rate.
Unsure how the WDA changes impact your tax relief? Our experts can guide you through your options. Send us a message, and we’ll be happy to help.
The Financial Impact: Comparing the Reduction in WDA Rates
Let’s say, for example, that a company has £50,000 of qualifying expenditure in its main pool that doesn’t qualify for Full Expensing or the Annual Investment Allowance. This could represent second-hand equipment, investments that exceed the AIA limit, or any other capital outlay that has been allocated to the main pool.
Assuming a corporation tax rate of 25%, here are the annual tax savings and cumulative relief over five years for the 18% and 14% WDA rates:
These figures reveal several important insights about the impact of the WDA rate reduction:
Year 1 Impact: In the first year, the business experiences a £2,000 reduction in cash tax savings under the 14% rate compared to the 18% rate. This represents a 22% decrease in first-year relief, which could have significant cash flow implications for businesses making large capital investments.
Diminishing Annual Differences: The annual difference in cash savings reduces each year as the pool balance declines. By year five, the difference has fallen to just £240, reflecting the reducing balance nature of the calculation.
Cumulative Effect: Over the five-year period, the total cash tax savings under the 14% rate are £4,985 lower than under the 18% rate. This represents approximately 16% less relief over this timeframe, based on the initial £50,000 expenditure.
Strategic Planning Considerations
The changes to writing down allowances announced in the Autumn Budget 2025 create several strategic planning opportunities and considerations for businesses.
Timing of Capital Expenditure
Businesses with planned capital expenditure should carefully consider the timing of their investments in light of the changes:
Before 1 April/6 April 2026: Expenditure incurred before these dates will benefit from the higher 18% WDA rate, providing faster tax relief over the coming years compared to the reduced 14% rate.
After 1 April/6 April 2026: Expenditure from this point forward will only attract WDAs at the reduced 14% rate, meaning slower relief and reduced cash flow benefits over time.
For businesses with discretion over when to make capital purchases, bringing forward expenditure to before April 2026 could provide meaningful additional tax relief, particularly for large investments.
Maximising Immediate Relief
Businesses should review whether their planned expenditure qualifies for more generous immediate relief options:
Full Expensing: Companies purchasing new, unused main rate plant and machinery (not for leasing) should ensure they’re claiming Full Expensing to obtain 100% immediate relief, avoiding reliance on WDAs altogether.
Annual Investment Allowance: All businesses should maximise use of the £1 million AIA, which provides 100% relief on qualifying expenditure up to this limit, again avoiding the need for WDAs on this expenditure.
40% First Year Allowance: The 40% First Year Allowance lets businesses deduct 40% of the cost of qualifying main-rate plant and machinery in the year of purchase, offering substantial upfront tax relief compared to standard writing down allowances. Introduced in the 2025 Autumn Budget, it fills the gap where full expensing doesn’t apply and is available to a wider range of businesses, including sole traders, partnerships, and LLPs. The remaining 60% of the expenditure continues to qualify for WDAs in future years.
50% First Year Allowance: The 50% First Year Allowance lets businesses deduct half the cost of qualifying special-rate plant and machinery purchased within the same year. These assets typically include integral features such as electrical, lighting, or heating systems. The remaining 50% can then be claimed over future years through standard capital allowances. This relief is especially useful when the Annual Investment Allowance has already been fully used.
Sector-Specific Considerations
Different sectors will be affected differently by these changes:
Unincorporated Businesses: Partnerships and sole traders cannot access Full Expensing, so they’ve relied more heavily on the AIA (up to £1 million) and WDAs for relief. For expenditure exceeding the AIA limit, the reduction to 14% will meaningfully slow their tax relief.
Manufacturing and Heavy Industry: These capital-intensive sectors often have expenditure exceeding immediate relief limits and will be impacted by the WDA rate reduction. They should focus on timing investments to maximise relief and consider whether operational changes could enable greater use of immediate reliefs.
Service Sectors: Businesses with lower capital expenditure requirements may find the changes have limited impact if their annual expenditure consistently falls within the AIA limit.
Record-Keeping and Compliance
The change in WDA rates creates some additional considerations for tax compliance:
Transitional Tracking: Businesses will need to carefully track their main pool balances and apply the correct WDA rate based on their accounting period dates.
Hybrid Rate Calculations: For businesses with accounting periods spanning the change dates, careful calculations of time-apportioned rates will be necessary to ensure compliance.
Elections and Claims: While WDAs are generally claimed automatically, businesses should ensure their tax computations correctly reflect the new rates from April 2026 onwards.
Frequently Asked Questions
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When does the WDA rate change from 18% to 14%?
The main rate writing down allowance will reduce from 18% to 14% from 1 April 2026 for corporation tax purposes and 6 April 2026 for income tax purposes. If your accounting period spans these dates, you’ll need to use a time-apportioned hybrid rate that reflects both the old and new rates.
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Will the 18% rate still apply to my existing main pool balance?
No. Once the rate changes in April 2026, all qualifying expenditure in your main pool, whether incurred before or after the change, will be subject to the new 14% rate. There’s no special rule protecting spending made when the 18% rate applied.
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Should I accelerate my capital expenditure to before April 2026?
If you have planned capital expenditure that will rely on writing down allowances (rather than Full Expensing or the AIA), bringing it forward to before 1 April 2026 (or 6 April for income tax) would allow you to benefit from the higher 18% WDA rate. This could provide meaningful additional tax relief and improved cash flow, particularly for large investments. However, you should weigh this against your business needs and cash flow position.
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Does the WDA rate reduction affect special rate pools?
No. The special rate pool, which contains integral features of buildings, long-life assets, and thermal insulation, continues to attract writing down allowances at 6% per annum. This rate was not changed in the Autumn Budget 2025.
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I'm a sole trader. How do these changes affect me?
As an unincorporated business, you cannot access Full Expensing, so you’ve historically relied on the Annual Investment Allowance (up to £1 million) and writing down allowances for tax relief on capital expenditure. The reduction in the WDA rate from 18% to 14% will slow down the tax relief you receive on expenditure exceeding your AIA limit, affecting your cash flow. For significant capital investments, you should consider the timing carefully and explore whether you can maximise the use of your AIA to minimise reliance on the reduced WDA rate.
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Can I claim writing down allowances on second-hand equipment?
Yes. Second-hand equipment purchased for use in your business qualifies for writing down allowances. The expenditure will be allocated to your main pool and will attract WDAs at the applicable rate (18% until April 2026, then 14% thereafter). However, second-hand equipment doesn’t qualify for Full Expensing, though it may qualify for the Annual Investment Allowance up to the £1 million limit.
Frequently Asked Questions
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What qualifies as "plant and machinery" for capital allowances purposes?
Plant and machinery includes both movable items (like computers, office furniture, tools, carpets) and embedded fixtures within a building (such as fitted kitchens, sanitaryware, fire alarms, lifts, air conditioning, and lighting).
Because plant and machinery isn’t defined in law, eligibility depends on how the asset is used in the business. Context matters; an item must serve a functional business purpose, not simply form part of the building structure.
Learn more about what is classified as ‘plant & machinery’.
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What is the Annual Investment Allowance, and should I use it before claiming WDAs?
The Annual Investment Allowance (AIA) provides 100% relief on the first £1 million of qualifying plant and machinery expenditure per year. It’s available to all businesses but doesn’t apply to assets acquired for leasing. You should always maximise your AIA before relying on WDAs, as it provides immediate full relief rather than relief spread over many years.
Learn more about Annual Investment Allowance.
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How does the reduction in WDA rates affect my business cash flow?
The reduction from 18% to 14% means you’ll receive tax relief more slowly, which impacts cash flow. As demonstrated in our example, on £50,000 of expenditure subject to WDAs, you would receive approximately £5,000 less in tax relief over five years under the 14% rate compared to the 18% rate. For capital-intensive businesses with large main pool balances, this cumulative effect can be significant.
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Can I elect not to claim writing down allowances in a particular year?
While writing down allowances are generally claimed automatically in your tax computation, you can choose not to claim them or to claim a lower amount. This might be beneficial if you have losses and want to preserve allowances for future profitable periods. However, most businesses claim the full available relief each year to maximise cash flow benefits.
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What records do I need to keep for capital allowances purposes?
You should maintain detailed records of all capital expenditure, including invoices, dates of purchase, descriptions of assets, and which pool each asset is allocated to. You’ll also need to track your pool balances year-on-year, the allowances claimed, and any disposals. Good record-keeping is essential for calculating the correct WDA each year and for demonstrating the qualifying nature of expenditure if HMRC enquires into your claims.
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Where can I get professional advice on these changes?
Given the complexity of capital allowances rules and the strategic considerations around the timing of expenditure, it’s advisable to consult with a qualified tax advisor. They can help you optimise your capital allowances claims, ensure compliance with the rules, and plan your investments to maximise tax efficiency in light of the Budget 2025 changes.
Ready to understand how the new WDA rates affect your business? Get in touch with our specialists today, and we’ll help you maximise your capital allowances.
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