How to Maximise Tax Relief on Equipment and Assets

If you’re investing in equipment, machinery, or business assets, understanding capital allowances is essential to reducing your tax bill.

However, recent changes announced in the Autumn Budget 2025 mean the rules are evolving—making planning more important than ever.

Here’s what you need to know for 2025/26 and 2026/27.

Why capital allowances matter

When running a business, you generally cannot deduct capital expenditure (such as equipment or machinery) directly from your profits.

Instead, tax relief is given through the capital allowances system, which spreads or accelerates relief depending on the type of asset and claim made.

Choosing the right approach can significantly impact:

• Your taxable profits
• Your cash flow
• Your overall tax position

What’s changing from April 2026?

Following the Autumn Budget 2025, two key changes are coming:

• A new 40% first-year allowance (FYA) for certain expenditure
• A reduction in main rate writing down allowances (WDA) from 18% to 14%

This means:

Businesses will get less relief over time, but more emphasis is placed on claiming relief upfront.

First-year allowances vs writing down allowances

There are two main ways to claim capital allowances:

First-year allowances (FYA)

These provide immediate tax relief in the year of purchase.

Examples include:

• Annual Investment Allowance (AIA)
• Full expensing (companies only)
• 50% FYA for special rate assets
• 100% FYA for new electric cars
• New 40% FYA from January 2026

Writing down allowances (WDA)

If full relief is not claimed upfront:

• The remaining balance is added to a pool
• Relief is given gradually each year

From April 2026:

• Main pool rate reduces to 14%
• Special rate pool remains at 6%

This makes WDAs less attractive over time.

Annual Investment Allowance (AIA): Still one of the best options

The AIA remains at £1 million, providing 100% relief on qualifying expenditure.

Key features:

• Available to companies and sole traders
• Applies to most plant and machinery (excluding cars)
• Covers both new and second-hand assets

Importantly:

• Claims are flexible
• You can claim full or partial AIA depending on your tax position

Full expensing: A powerful tool for companies

For companies, full expensing offers:

• 100% immediate relief
• No upper limit on qualifying expenditure

However:

• Only applies to new and unused main pool assets
• Not available to sole traders or partnerships

This makes it particularly valuable for:

• Large capital investments
• Growing businesses reinvesting profits

Should you always claim maximum relief?

Not necessarily.

Although claiming 100% relief upfront is often beneficial, there are situations where delaying relief makes sense.

For example:

• A sole trader with low income may waste their personal allowance
• Spreading relief could preserve tax savings for future years
• Businesses expecting higher profits later may benefit from timing claims

Capital allowance claims are optional and flexible, which allows for strategic planning.

Choosing the right approach

The best strategy depends on:

• Your business structure (company vs sole trader)
• Current and expected future profits
• Cash flow needs
• Type of assets purchased

A tailored approach can:

• Reduce tax liabilities
• Improve cash flow
• Avoid wasted allowances

Practical tips for business owners

To maximise your position:

• Review planned purchases before committing
• Consider timing expenditure across tax years
• Use AIA or full expensing where beneficial
• Avoid defaulting to full claims without planning
• Seek advice for larger investments

Final thoughts

Capital allowances are one of the most valuable—but often underused—tax reliefs available to businesses.

With the reduction in writing down allowances from April 2026, it’s becoming increasingly important to:

Plan early and claim relief efficiently.

Need help with capital allowances planning?

At Merranti Accounting, we help businesses:

• Maximise capital allowances
• Plan investment decisions tax-efficiently
• Navigate changing tax rules

If you’re planning to invest in equipment or want to review your current claims, get in touch with our team today.