What are first-year allowances and how do they cut my tax bill in 2026?

Full answer

First-year allowances (FYAs) are a form of capital allowance that let a business write off all or an enhanced share of the cost of qualifying capital expenditure in the year it is incurred, rather than over several years. The headline measure is full expensing, which gives companies a 100% first-year deduction on qualifying new and unused plant and machinery (the main rate pool), with a 50% first-year allowance for qualifying special-rate assets. This applies to companies within the charge to Corporation Tax. Who benefits: incorporated businesses investing in equipment, machinery, commercial vehicles and similar assets. Cars are generally excluded from full expensing, and the asset must usually be new rather than second-hand. Unincorporated businesses (sole traders and partnerships) instead rely mainly on the Annual Investment Allowance, which also gives 100% relief up to its limit. Worked example: a company spends GBP 100,000 on qualifying new machinery. Under full expensing it deducts the entire GBP 100,000 from its taxable profits this year. If that profit would otherwise be taxed at the 25% main Corporation Tax rate, the deduction saves GBP 25,000 in tax in the same year. For 2026/27, Corporation Tax is 19% on profits up to GBP 50,000, 25% above GBP 250,000, with marginal relief between. The cash-flow benefit is significant because relief is front-loaded. Watch the detail: claiming the right allowance pool, the new-versus-used rules, exclusions such as cars, and balancing charges if you later sell an asset on which you claimed full relief. Specific FYA categories and their precise rules change over time, so confirm current qualifying categories on gov.uk before claiming. Use the corporation-tax calculator to see how a deduction changes your bill.

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