New Tax Incentives for UK Companies Now in Effect!
- TBA
- Feb 11
- 3 min read
A new First Year Allowance policy in the UK officially came into effect on 1 January 2026—offering a permanent 40% First Year Allowance (FYA) on qualifying plant and machinery for UK companies. This policy marks another significant step by the UK in improving the business and investment environment.
The Treasury stated that this measure aims to encourage businesses to undertake capital investment, providing significant upfront tax relief for both incorporated and unincorporated businesses, thereby supporting business growth and economic development.
Key details of the new policy for UK Companies
According to the new regulations, the main details of the First Year Allowance (FYA) include:
40% First Year Allowance: businesses can claim a 40% First Year Allowance on qualifying main rate plant and machinery
Applicable to leased assets: assets purchased for leasing purposes are also eligible for this relief
Coverage for unincorporated businesses: unincorporated businesses, which were previously unable to benefit from full expensing, are now included in the scope
Long-term stability: this allowance is a permanent policy, providing long-term certainty for business investment planning
This new First Year Allowance policy builds upon the existing capital allowance system, giving the UK a distinct corporate advantage amongst OECD nations and further strengthening domestic investment incentives.
Full expensing still applies
The new allowance policy complements the existing full expensing system. Full expensing allows companies to claim a 100% capital investment deduction in the year they purchase qualifying plant and machinery (such as warehouses or production equipment), meaning the entire cost is deducted from taxable profits.
For incorporated businesses, this system remains applicable: for every £1 invested, up to 25p in tax can be saved, corresponding to the current corporation tax rate.
Practical impact on businesses
This change is particularly relevant for businesses investing in equipment, infrastructure, logistics, manufacturing, and other capital-intensive operations.
Chancellor Reeves pointed out that encouraging business investment is key to driving economic growth and enhancing market confidence.
Upon the launch of these new tax incentives, policy commitments were reiterated, including:
Maintaining the corporation tax cap at 25% for the remainder of this parliament (the lowest in the G7)
Maintaining a stable and competitive corporation tax environment
Supporting fast-growing businesses and long-term capital investment
As part of fiscal balancing, the UK government proposed in the 2025 Budget that, from April 2026, the Writing Down Allowance (WDA) for main rate assets will be reduced from 18% to 14%.
The view from TB Accountants
With the 40% First Year Allowance (FYA) policy having officially come into effect on 1 January 2026, businesses can now enjoy significant upfront tax relief on capital investments such as plant and machinery.
This policy complements the existing full expensing system, not only reducing the initial tax burden for companies but also providing long-term, stable investment incentives for unincorporated businesses and leased assets.
For enterprises planning to expand into overseas markets and establish a presence in the UK, this period is undoubtedly the best time to enter.
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