Where first year allowances, such as the Annual Investment Allowance or full expensing, are not claimed in respect of capital expenditure on plant and machinery, or not claimed in full, relief is instead given by way of reduction in WDAs writing down allowances . The rate at which the allowance is given depends on whether the expenditure is main rate expenditure of special rate expenditure.
Special rate pool
Expenditure is allocated to the special rate pool where it relates to integral features, items with a long life, solar panels, thermal insulation or cars with CO2 emissions above a certain threshold. For cars purchased on or after 6 April 2021, cars with CO2 emissions of 50g/km or above are added to the special rate pool. Special rate expenditure attracts WDAs at the rate of 6% per annum on a reducing balance basis. As for all capital allowances, there is no requirement to claim them or claim the full amount.
Main rate pool
Expenditure not relieved by first year allowances on plant and machinery that was not allocated to the special rate pool is allocated to the main rate pool. The rate of main rate WDAs fell to 14% from 1 April 2026 for companies and from 6 April 2026 for individuals. Previously, the rate was 18%. The allowance is given on a reducing balance basis.
Where the accounting period spans the date on which the rate changed, a hybrid rate applies for that accounting period which is based on the proportion of the period falling before the rate change and the proportion falling on or after the rate change.
Example of Reduction in WDAs from April 2026
A Ltd prepares accounts to 30 June each year. At the start of the accounting period, the brought forward balance on the main rate pool was £150,000. During the year, the company purchases two new cars with CO2 emissions of 20g/km, costing £35,000 each. The expenditure is added to the main rate pool.
The rate of main rate WDAs is 18% prior to 1 April 2026 and 14% on or after that date. As the year to 30 June 2026 spans the date on which the rate changed, it is necessary to calculate a hybrid rate for that period.
In the year to 30 June 2026, 274 days fell before 1 April 2026 when the rate was 18% and 91 days fell on or after 1 April 2026 when the rate was 14%. The hybrid rate is therefore 17% ((274/365 x 18%) + (91/365 x 14%)).
The company can claim main rate WDAs for the year to 30 June 2026 of £37,400 (17% (£150,000 + £35,000 + £35,000)).
