UK proposes higher first-year capital allowance and lower annual write-downs

Treasury’s policy-costing document distinguishes the expenditure affected by each measure. The proposed writing-down reduction covers existing main-rate pools as well as new qualifying expenditure. The first-year increase applies only to new main-rate expenditure, including qualifying plant or machinery for leasing, but excludes second-hand assets and cars.^[1]

The annual main-rate writing-down allowance would fall from 14% to 12%, with an intended start of 1 April 2027 for corporation tax and 6 April 2027 for income tax. The 50% first-year proposal instead follows qualifying expenditure incurred on or after 1 January 2027. These expenditure-date and taxpayer-period tests are distinct; the announcement is not a new filing deadline.^[1][2][5]

The current Capital Allowances Act 2001 provides the comparison. Section 52’s table gives section 45U expenditure a 40% first-year rate, separate from the 50% special-rate allowance for section 45S expenditure. Section 45U contains existing new-and-unused and non-special-rate conditions, subject to further statutory exclusions. The Budget proposal should not be treated as a complete replacement eligibility code.^[4][6]

The published government material contains a discrepancy: Annex A’s main-rate first-year allowance row displays 40% for both financial years, while its footnote, OOTLAR and the policy-costings narrative describe the proposed increase to 50%. This brief preserves that inconsistency rather than silently changing the table. No corresponding TIIN or operative amendment has been reviewed.^[1][2][3]

Groups should distinguish expenditure eligible for a first-year deduction from balances remaining in main-rate pools, and identify asset type, acquisition date, leasing use and taxpayer basis before modelling the proposals. The final legislation must establish operative conditions and any transition mechanics. This focused measure does not complete review of the wider Budget’s business-tax package.^{[1][2][4][5][6]}