40% First Year Allowance: Good News for Hire Businesses Investing in Plant & Machinery

Following the UK’s Autumn Budget 2025, the government has confirmed a significant capital allowance change that directly benefits businesses purchasing plant and machinery for hire or lease.

From 1 January 2026, qualifying businesses can claim a 40% First Year Allowance (FYA) on eligible new assets, alongside the continued £1 million Annual Investment Allowance (AIA). For the hire industry, this is a meaningful and long‑awaited incentive that improves cash flow and supports investment in modern, productive equipment.

This article explains what the change means, who it applies to, and where to find the official government guidance.

What Is the 40% First Year Allowance?

The 40% First Year Allowance allows businesses to deduct 40% of the cost of qualifying plant and machinery from taxable profits in the year the asset is purchased.

Crucially, this allowance is specifically designed for assets bought to be leased or hired out — an area that has historically been restricted under other capital allowance schemes.

The objective is clear: encourage investment in hire fleets by accelerating tax relief in the early years of ownership.

Why This Is Good News for the Hire Industry

For hire businesses, capital allowances have often favoured owner‑operators rather than assets intended for hire. The new 40% FYA helps rebalance that position.

The key benefits for hire companies include:

• Faster tax relief in year one
• Improved cash flow following major equipment purchases
• Stronger justification for fleet investment and renewal
• Greater certainty when investing in high‑value plant and machinery

This change directly recognises the role hire businesses play in supporting construction, infrastructure, facilities management and industrial activity across the UK.

Who Can Claim the 40% FYA?

The allowance applies to businesses that:

• Purchase new and unused plant or machinery
• Acquire assets for leasing or hiring out
• Operate as incorporated or unincorporated businesses
• Invest in main‑rate plant and machinery

This makes it particularly relevant to hire companies operating in sectors such as construction, infrastructure, agriculture, facilities management and industrial services.

What Equipment Qualifies?

The 40% FYA applies to main‑rate plant and machinery, which typically includes:

• Industrial and commercial equipment
• Construction and site machinery
• Cleaning and maintenance equipment
• Specialist plant intended for hire

Assets must be new and unused to qualify.

How Does This Compare to Other Capital Allowances?

Understanding how the 40% FYA fits alongside existing allowances is important when planning investment.

Annual Investment Allowance (AIA)

• Remains at £1 million
• Offers 100% immediate tax relief
• Applies to most plant and machinery
• Can still be used alongside FYA, depending on circumstances

Full Expensing

• Provides 100% relief
• Generally does not apply to assets purchased for hire
• Less relevant for hire‑focused businesses

40% First Year Allowance

• Specifically supports hire and leasing assets
• Delivers accelerated relief in year one
• Remaining value is relieved over time via writing‑down allowances

Important Change: Writing‑Down Allowance Reduction

Alongside the introduction of the 40% FYA, the government has confirmed a reduction in the main pool writing‑down allowance.

From April 2026, this allowance will fall from 18% to 14%.

This creates a clear trade‑off:

• More relief upfront through the 40% FYA
• Slower relief later on the remaining balance

For this reason, many advisers suggest that businesses carefully time major investments to maximise early‑year benefits.

What This Means in Practice

For hire businesses planning capital investment, the message is straightforward:

• Investing sooner can deliver stronger early tax relief
• Cash flow improves in the year equipment enters service
• Fleet upgrades become easier to justify financially
• Investment decisions can be aligned more closely with operational demand

This is a pro‑growth incentive aimed at businesses that rely on reliable, productive machinery to support their customers.

Official Government Guidance

For the most accurate and up‑to‑date information, businesses should always refer to official government guidance and seek professional advice.

👉 UK Government – Capital Allowances
https://www.gov.uk/capital-allowances

Your accountant or tax adviser can confirm eligibility and advise on the most effective approach for your business.

Investing in Equipment Built to Deliver

Capital allowances reward businesses that invest in long‑life, productive assets. For hire companies, the focus should always be on equipment that delivers reliability, uptime and value over its working life.

When tax efficiency and operational performance align, businesses put themselves in a stronger position — now and in the years ahead.

Clear decisions. Smart investment. Built for the long run.

To find the right machinery investment for you, contact our friendly, helpful team.