If you run a factory, 2026 is the year the arithmetic behind your machine purchases actually changes. Three dates do the work, the rate you apply depends on where your year end sits between them, and the decision that costs manufacturers real money is not whether to claim but which allowance to point at which purchase. Start with the chronology.
| From | What changes | Applies to |
|---|---|---|
| 1 January 2026 | New 40% first-year allowance (FYA) on new and unused main-rate plant and machinery, per FA 2026 s.29 | Companies and unincorporated businesses |
| 1 April 2026 | Main-rate writing-down allowance (WDA) falls from 18% to 14%, per FA 2026 s.28 | Corporation tax |
| 6 April 2026 | The same fall from 18% to 14% | Income tax (sole traders and partnerships) |
| Unchanged through 2026 | Annual Investment Allowance (AIA) £1,000,000 a year; special-rate pool WDA 6%; full expensing 100% on new main-rate plant and 50% on new special-rate plant, companies only; Structures and Buildings Allowance (SBA) 3% | As stated in each row |
Everything below reads off that table. The general mechanics of each allowance sit on our capital allowances guide for 2026/27 and, for the 100% and 50% company routes, on full expensing. What follows is the factory application: production plant, tooling, and the integral features inside an industrial building.
Finding the rate when your year end sits between the dates
Very few manufacturers have a 31 March or 5 April year end, so most will apply a rate that appears nowhere in the legislation. A period that straddles the commencement date is treated as having a single hybrid main-rate WDA, apportioned by the number of days each side. One rate, applied to the whole main pool, not two rates applied to two slices of it.
Take a company with an accounting period running 1 October 2025 to 30 September 2026. There are 182 days to 31 March 2026 and 183 days from 1 April 2026, out of 365. The hybrid rate is ((18 x 182) + (14 x 183)) / 365 = (3,276 + 2,562) / 365 = 15.99%.
A sole trader or partnership with the same 30 September year end works to 6 April instead: 187 days at 18% and 178 days at 14%, giving ((18 x 187) + (14 x 178)) / 365 = (3,366 + 2,492) / 365 = 16.05%. Close to the company figure, but not the same figure, and the wrong one on a seven-figure pool is not a rounding matter.
Three routes to relief on one new machine
Ola runs a precision engineering company in Wrexham, machining components for two automotive tier-one suppliers. Her accounting period is 1 October 2025 to 30 September 2026, so her hybrid main-rate WDA is 15.99%. In June 2026 she buys a new and unused CNC machining centre for £400,000. Three routes are open, and they are not equivalent.
| Route | Year-one allowance | What is left in the pool | Availability |
|---|---|---|---|
| AIA at 100% | £400,000 | Nil | Any business, but consumes £400,000 of a £1,000,000 annual cap |
| 40% FYA (from 1 January 2026) | £160,000 | £240,000 allocated to the main pool in the following period, earning the writing-down allowance at that period's rate | Companies and unincorporated businesses, new and unused assets only |
| Full expensing at 100% | £400,000 | Nil | Companies only, new and unused assets only, no annual cap |
Read in isolation the 40% first-year allowance looks like the weakest of the three, and on a single purchase by a company it is. Its value is that it has no owner restriction: a partnership of two brothers running a fabrication shop cannot use full expensing at all, so for them the comparison is AIA against 40%, and the 40% route only makes sense once the AIA cap is gone. Its second value is that it does not eat the cap, which is what the next section turns on.
Where to point the Annual Investment Allowance first
The AIA is £1,000,000 for a 12-month period, it is time-apportioned if the period is shorter, and it cannot be carried forward. That last point catches manufacturers who shorten a period to change a year end: a six-month transitional period carries a £500,000 AIA, and the unused half is simply gone.
Because the cap is finite, the AIA is worth most where nothing else reaches. Full expensing and the 40% first-year allowance both require the asset to be new and unused. Second-hand plant does not qualify for either, and neither do the integral features you acquire when you buy an existing industrial unit. Those assets fall to the special-rate pool at 6% a year unless the AIA covers them, and 6% a year is a very long road: after five years you have relieved about a quarter of the cost.
So the order is the opposite of the order you spend in. Cover second-hand plant and second-hand integral features with the AIA first, then use full expensing or the 40% allowance on the new main-rate plant, which does not need the cap at all.
Ola's year, worked in full
Ola's company buys the second-hand factory unit next door in November 2025 and rewires it, replacing the electrical distribution, the ventilation system and the lighting. Those are integral features and, being acquired second-hand with the building, they carry no first-year allowance. The qualifying integral-features spend after a fixtures apportionment is £900,000. Add the £400,000 CNC machine and total qualifying spend is £1,300,000. Taxable profit before capital allowances is £1,500,000. She has no associated companies.
Order A, the common ordering error. The AIA goes on the biggest new item first, so £400,000 covers the CNC machine and the remaining £600,000 covers part of the integral features. That leaves £300,000 of integral features in the special-rate pool, earning 6%, which is £18,000. Year-one allowances total £400,000 + £600,000 + £18,000 = £1,018,000.
Order B, claiming in the order that matters. The AIA still covers the £900,000 of second-hand integral features, because nothing else can. The £400,000 machine is new and unused, so full expensing takes it at 100% without touching the cap. Year-one allowances total £900,000 + £400,000 = £1,300,000. The £100,000 of unused AIA lapses, and that costs nothing, because it was never going to reach anything.
The corporation tax effect, with the £50,000 and £250,000 marginal relief limits and the 3/200 standard fraction:
| Line | Order A | Order B |
|---|---|---|
| Profit before capital allowances | £1,500,000 | £1,500,000 |
| Year-one capital allowances | £1,018,000 | £1,300,000 |
| Taxable profit | £482,000 | £200,000 |
| Corporation tax | Above the £250,000 upper limit, so 25% of £482,000 = £120,500 | In the marginal band: (25% x £200,000) less (3/200 x (£250,000 less £200,000)) = £50,000 less £750 = £49,250 |
Order B saves £71,250 of corporation tax in the year on identical spending, and it drops the company from the 25% main rate into the marginal band, where the effective rate on the £200,000 is £49,250 / £200,000 = 24.625%. Order A leaves £282,000 sitting in the special-rate pool, which is exactly the £282,000 of extra relief Order B took in year one, written down at 6% a year from the following period. The relief is deferred rather than lost, but at 6% a manufacturer replacing plant on a five-year cycle is deferring it behind the next purchase and the one after that.
If Ola traded as a sole trader rather than through a company, full expensing would be closed to her entirely. Her best available order would be AIA £900,000 on the integral features, AIA £100,000 on the machine, a 40% first-year allowance of £120,000 on the remaining £300,000, with the £180,000 balance entering the pool the following period. Total year-one allowances £1,120,000, against £1,300,000 for the company. The structure changes the answer, which is worth knowing before you buy rather than after.
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Second-hand machines, and what never qualifies
A used press or a rebuilt lathe bought from a dealer is main-rate plant, so it gets the AIA at 100% if you have cap left, and otherwise sits in the main pool at 14% for periods from April 2026. It gets no first-year allowance of any kind, and no amount of refurbishment makes a second-hand machine new and unused.
Cars are excluded from the AIA and from the first-year allowances outright, whatever the business does. If your factory runs pool cars or a director's vehicle, that is a separate calculation based on CO2 emissions, and it is covered on our page about writing-down allowances on cars. Vans, forklifts and lorries are not cars for this purpose and take the ordinary plant treatment.
Integral features inside an industrial building
When you buy or refit a factory, a large slice of the price is not the building and not loose plant but integral features: electrical systems, cold and hot water systems, space and water heating, lighting, and air and ventilation systems. They go to the special-rate pool at 6%, or take a 50% first-year allowance if they are new, unused and you are a company. On a purchase of an existing building the split between building, integral features and other fixtures is a valuation exercise, and where a previous owner claimed on the same fixtures a s.198 election fixes the value passing to you. The detail sits on our page about integral features. What matters for the ordering decision is only this: second-hand integral features are the highest-value target for your AIA, because 6% is the alternative.
The factory shell itself is not plant. Qualifying construction costs, excluding land, attract the Structures and Buildings Allowance at 3% a year on a straight-line basis, and you need the allowance statement from the person who incurred the construction cost to claim it. It is a slow relief on a separate track and it does not compete with anything above.
Why your depreciation figure is not your claim
Manufacturing accounts often carry a heavy depreciation charge, and it is not deductible for tax. Depreciation is added back to the profit in the tax computation and capital allowances are given instead, which means the machine you are writing off over ten years in the accounts may have been relieved in full in year one, or may be crawling along at 14%. That has two consequences for a factory. Your management accounts will understate or overstate your tax position for years unless the deferred tax is tracked properly, and the disposal of a machine that was relieved at 100% generally produces a balancing charge on the sale proceeds rather than a quiet adjustment. Costing decisions that use the depreciation line as a proxy for the tax effect of a machine will be wrong in both directions.
The wider picture of how machine costs land in your product costing sits with our work on manufacturing costing, work in progress and year-end stock, and the rest of the factory finance function is set out on our page for accountants for manufacturers.
What to check before your next machine order
Four things decide the answer, and you can establish all four before you sign: whether the asset is new and unused or second-hand, whether you are a company or unincorporated, how much AIA the period has left, and where your period sits relative to 1 April or 6 April 2026. If you are close to a year end and close to the £1,000,000 cap, the timing of the invoice and the date the asset is brought into use can move the relief a whole year. HMRC's capital allowances manual at CA23080 onward covers the AIA rules, and the underlying law is CAA 2001 as amended by FA 2026 ss.28 and 29.