Make capital allowances count – A smart move for the 2025/26 tax year

The new tax year is now underway, bringing with it a host of changes set out in the Government’s Autumn Budget.

For business owners, this is the time to reassess spending, sharpen tax planning, and take full advantage of available reliefs.

Rising employment costs and tighter thresholds are likely to affect cash flow, making capital allowances more valuable than ever.

New payroll pressures now in force

As of 6 April 2025, employer National Insurance Contributions (NICs) have risen from 13.8 per cent to 15 per cent.

At the same time, the threshold for employer NICs has dropped from £9,100 to £5,000.

The Employment Allowance has increased to £10,000, offering some relief, but for many, it won’t fully offset the impact.

Higher National Minimum Wage and National Living Wage rates also took effect at the same time, adding further strain to payroll budgets.

Capital allowances – A tax-saving opportunity you should not miss

With margins under pressure, claiming capital allowances efficiently can be a simple but effective way to lower your Corporation Tax bill.

These allowances let you deduct the cost of qualifying capital assets from your taxable profits.

Here is what is available for 2025/26:

• Full expensing

• • Available for companies investing in new plant and machinery.
  • Provides 100 per cent tax relief in the year of purchase.
  • Applies to main rate assets such as tools, machinery, and office equipment.
• Annual Investment Allowance (AIA)
  • Open to all types of businesses such as limited companies, partnerships, and sole traders.
  • Offers 100 per cent relief on qualifying expenditure, up to a £1 million annual limit.
• First-Year Allowances (FYA)
  • Designed to promote investment in energy-efficient or environmentally friendly equipment.
  • Offers 100 per cent first-year relief without using up your AIA.
  • Examples include zero-emission vehicles and EV charging infrastructure.
• Writing Down Allowances (WDA)
  • Used when other allowances are not available.
  • Spreads tax relief over time. 18 per cent annually for standard assets, six per cent for special rate or long-life assets.

Make sure your claims are accurate

The rules around capital allowances can be detailed and occasionally complex. Incorrect classifications or overlooked assets could mean missing out on valuable tax relief or, worse, triggering HMRC queries.

Working with a knowledgeable adviser ensures your claims are thorough, accurate, and fully compliant.

Get in touch now to make capital allowances work for your business in 2025/26.