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Businesses to receive boost to investment as a new first-year allowance takes effect today (Thursday 1 January), as the government continues its drive to make Britain the best place to do business.
First announced by the Chancellor at Budget 2025, the government is continuing to offer greater upfront tax reliefs for businesses with a new 40% permanent first-year allowance for main-rate plant and machinery.
This new relief follows calls from businesses to expand full expensing to more assets and businesses, and will mean businesses can deduct much of the cost of their investment in the year they make that investment, cutting their tax bill.
Chancellor of the Exchequer, Rachel Reeves, said:
Saving tax for businesses that are investing is key to building the confidence needed to boost growth. We are building on the UK’s capital allowance regime – one of the most generous in the world – alongside capping Corporation Tax and enabling more scale ups to attract investment to help create a tax system that supports growth.
This will be available for assets bought for leasing and for unincorporated businesses, which do not benefit from full expensing, while preserving the current incentives to invest.
Full expensing allows companies to claim 100% capital allowances on qualifying main rate plant and machinery investments, such as warehouses or construction equipment, which means a company can deduct the entire cost of its investment from its taxable profits in year one, so that for every pound invested its taxes are cut by up to 25p.
The UK has one of the most generous and competitive capital allowances regimes in the world and is top of the rankings of OECD countries for plant and machinery capital allowances.
In line with the commitments made in the 2024 Corporate Tax Roadmap, the government has maintained the parts of the UK Corporate Tax offer that are most important for attracting new investment. This includes capping Corporation Tax at 25% for the rest of this Parliament, the lowest in the G7, and the generous full expensing offer.
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