Corporation tax was held at existing rates of between 19% and 25%, however, there were some changes to capital allowances announced in the Budget 2025.
The government say they remain committed to the changes set out in the corporation tax roadmap, aiming to provide businesses assurance and make targeted amendments to the capital allowances relief of main rate assets in a way that preserves relief for future investment. Capital allowances are also available to businesses carried on by individuals, although the rules vary.
From 1 April 2026 for corporation tax and 6 April 2026 for income tax, main rate writing-down allowances (WDA) will be reduced from 18% to 14%. This rate has been set at 18% since 2012. This measure only impacts the main rate allowance and does not change the WDA on the special rate pool which is currently 6%.
Importantly, in a push to encourage businesses (including unincorporated and companies) to invest in leased assets, a new 40% First year Allowance (FYA) was announced for newly qualifying assets (excluding second hand assets and cars).
Reducing the capital allowances writing down allowance (WDA) may be seen as a net negative but the new 40% first year allowance (FYA) should benefit leasing companies. The FYA could be beneficial where the £1 million Annual Investment Allowance is unavailable.
The government will extend the 100% FYA for zero emission cars and EV chargepoint infrastructure by a further year, with this FYA now expected to be in place until 31 March 2027 for corporation tax purposes and 5 April 2027 for income tax purposes
Overall, the changes are a net tax revenue raiser as it makes the after-tax cost of investment higher, estimated to reach its full potential and raise c. £1,450m to £1,500m per annum from 2027 onwards.