Capital allowances are one of the most reliable ways for a limited company to reduce its corporation tax bill. Buy qualifying assets, deduct the cost from taxable profits, pay less tax. The mechanics are straightforward. But the rules changed in April 2026 — and many founder-directors are either not claiming the full reliefs available, or defaulting to the wrong allowance and getting slower relief than they're entitled to.
The Three Allowances You Need to Know
There are three main capital allowance routes for limited companies in 2026/27:
Full Expensing — a 100% first-year deduction on qualifying new plant and machinery, with no spending cap. Permanent from April 2023. Available to limited companies paying corporation tax only — sole traders and partnerships cannot claim it. The asset must be brand new and unused. Second-hand assets, cars, and assets bought for leasing do not qualify.
Annual Investment Allowance (AIA) — a 100% deduction on qualifying plant and machinery up to £1 million per year. Covers both new and second-hand assets. Available to all businesses including sole traders and partnerships. For most Runway clients investing below £1 million in any year, the AIA achieves the same immediate 100% deduction as full expensing — the difference matters most for larger investments or where AIA needs to be shared across group companies.
Writing Down Allowance (WDA) — the fallback rate for assets that don't qualify for or aren't covered by the above. This is where the April 2026 change bites.
What Changed in April 2026
The main pool Writing Down Allowance rate was permanently reduced from 18% to 14% from 1 April 2026 for companies within corporation tax.
This change affects assets in the main pool that don't qualify for full expensing or the AIA — primarily second-hand plant and machinery, cars with CO2 emissions between 1g/km and 50g/km, and any existing pool balances carried forward from previous years.
The practical impact: tax relief on those assets now arrives more slowly. At 18%, a company writing down a £20,000 pool balance would claim £3,600 in year one. At 14%, they claim £2,800. The total relief over time is unchanged — but it's stretched over a longer period. At 25% corporation tax, slower relief means more tax paid sooner.
To partially offset this, a new 40% First Year Allowance was introduced from 1 January 2026, applying to qualifying main rate plant and machinery in situations where full expensing cannot be used — most notably assets purchased for leasing, which were previously excluded from full expensing entirely.
Where Founders Are Leaving Money on the Table
The most common mistakes aren't exotic tax structures — they're straightforward planning gaps.
Defaulting to WDA on qualifying new assets. Full expensing gives 100% relief in the year of purchase on new qualifying plant and machinery with no cap. Companies that aren't actively claiming it — and instead letting assets sit in the main pool at 14% WDA — are deferring significant relief unnecessarily.
Not timing capital investment around the accounting year end. Full expensing and AIA are claimed in the year of purchase. A piece of equipment bought one week before year end delivers the same full deduction as one bought at the start of the year. For companies approaching a profitable year end, accelerating planned investment can materially reduce the corporation tax bill for that period.
Missing the new 40% FYA on leased assets. Companies that lease assets to third parties previously had no access to full expensing. The new 40% FYA changes that for expenditure from January 2026 onwards — giving meaningful first-year relief where none previously existed.
Carrying large pool balances at the new 14% rate. If your company has a significant main pool balance from assets bought in prior years, the WDA reduction means slower relief going forward. Understanding the size of that balance and whether any assets can be disposed of or reclassified is worth reviewing.
What Founders Should Do Before Year End
Capital allowances planning is most effective when it happens before the accounting year ends — not when the tax return is being prepared.
- Review planned capital investment for this financial year. Anything qualifying for full expensing or AIA that's planned for next year might be worth bringing forward if you're in a profitable year.
- Check what's in your main pool. Understand the balance, the asset mix, and whether the new 14% rate changes how you think about holding or disposing of certain assets.
- Confirm assets are correctly classified. New qualifying assets should be claimed under full expensing or AIA — not left in the pool to be written down at 14%. This is a configuration question on your tax return, not a decision that makes itself.
- Consider the corporation tax rate you're paying. At the full 25% rate, a £120,000 investment in qualifying new plant and machinery claimed under full expensing produces a £30,000 in-year corporation tax saving. At 19%, that figure is £22,800. The rate your company pays changes the value of the relief — and is worth factoring into investment timing decisions.
For the full technical detail on capital allowances, see HMRC's capital allowances guidance.
Capital allowances aren't a loophole or a planning trick. They're the mechanism HMRC uses to give companies tax relief on investment. Getting them right is simply a matter of making sure the return reflects what your business is entitled to claim.
If you want to make sure your company is claiming the right reliefs ahead of year end, speak to a Runway co-founder.
