Autumn Budget: Reduction in Writing-Down Allowance to Increase Corporation Tax Bills
The Autumn Budget included a significant change to capital allowances that will directly affect how businesses deduct the cost of their capital expenditure. The government has confirmed that the main rate of the writing-down allowance (WDA) will be reduced, increasing the amount of taxable profit companies will pay corporation tax on.
This measure is expected to raise £1.5 billion, making it one of the more significant business tax changes in the Budget.
What Is Changing?
Capital allowances allow businesses to deduct the cost of machinery, equipment, and other qualifying assets over time.
Currently, businesses can claim a percentage of the asset’s value each year through the writing-down allowance. The rate applied determines how quickly the cost is relieved against taxable profits.
The Budget confirms that the main rate of the WDA will be reduced, meaning:
- Companies will receive slower tax relief on their capital expenditure
- More profit will remain taxable for longer
- Corporation tax liabilities will increase
This measure is separate from full expensing, which remains available for certain investments but does not cover all assets or all businesses.
Who Will Be Most Affected?
This change affects a wide range of businesses, including:
Companies investing regularly in plant and machinery
Manufacturers, construction firms, and engineering companies rely heavily on WDAs to reduce taxable profit.
SMEs with limited ability to use full expensing
Not all companies can benefit from full expensing, especially those whose expenditure falls outside qualifying categories.
Businesses with tight cash flow margins
Slower tax relief means higher corporation tax bills in the early years of an investment, which may impact cashflow planning.
Industries with high capital intensity
Sectors such as logistics, transport, utilities and production are likely to feel the impact more significantly.
Why Is This Being Done?
The government is seeking to increase revenues from corporate taxation while maintaining targeted investment incentives.
Reducing the WDA:
- Raises corporation tax without increasing the headline rate
- Aligns with broader fiscal goals to raise revenue across multiple tax bases
- Reduces the long-term cost of capital allowances to the Exchequer
It is part of the broader £26bn tax package announced in the Budget.
What Does This Mean for Business Investment?
The change may influence how companies plan capital expenditure:
- Upfront tax relief will be lower, making some investments less attractive
- Businesses may reconsider the timing of major purchases
- Forecasts and budgets may need revisiting due to higher tax outflows
- Some firms may shift towards assets eligible for full expensing
The overall effect will vary depending on the nature of the assets being purchased and the company’s tax profile.
Planning Considerations
Businesses should review:
- Capital expenditure pipelines for the coming years
- Whether assets can qualify for full expensing or the Annual Investment Allowance (AIA)
- Cashflow forecasts under the reduced WDA rate
- Timing of purchases around the implementation date
- Long-term investment strategy in light of reduced relief
A strategic approach can help mitigate the impact of higher corporation tax bills.
Summary
The reduction in the writing-down allowance represents a significant change to how businesses recover the cost of their capital investments. While it may seem technical, the practical impact will be felt directly through higher corporation tax bills and changes to the timing of tax relief.
Companies should assess how this will affect future investment decisions and overall cashflow. Merranti Accounting can help model the impact of these changes and advise on the most tax-efficient approach to capital expenditure.
