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Capital Allowances and Electric Car Tax Changes: What Businesses Need to Know

The Autumn Budget 2025 introduced significant changes to the corporation tax capital allowances regime and new measures affecting electric vehicles (EVs). These changes will influence how businesses plan investment and manage fleet costs over the coming years.
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Corporation Tax Allowance Changes
• Main Writing-Down Allowance (WDA)
From April 2026, the WDA for main pool assets will reduce from 18% to 14%. This means it will take longer to write off the cost of plant and machinery against taxable profits.
• New 40% First-Year Allowance (FYA)
From 1 January 2026, businesses can claim a 40% FYA on qualifying main-rate assets in the year of purchase. This is available to companies and unincorporated businesses, including assets used for leasing.
• Full Expensing and Annual Investment Allowance (AIA)
Full expensing remains in place for companies, and the £1m AIA continues for smaller businesses.
Impact:
Timing is critical. Businesses planning major capital expenditure should consider bringing forward purchases to benefit from full expensing or the new FYA before the lower WDA rate applies.
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Electric Vehicle Tax Changes
• Mileage-Based EV Tax (Electric Vehicle Excise Duty)
From April 2028, EVs will pay 3p per mile, and plug-in hybrids 1.5p per mile, in addition to Vehicle Excise Duty. This aims to replace lost fuel duty revenue.
• Expensive Car Supplement Threshold Raised
From April 2026, the threshold for the VED Expensive Car Supplement on EVs rises from £40,000 to £50,000, reducing costs for many popular electric models.
• Extended 100% First-Year Allowance for Zero-Emission Cars and Charging Infrastructure
The government has extended the 100% FYA for zero-emission cars and EV charge points for another year, making it attractive for businesses to invest in green fleets and infrastructure.
• Electric Car Grant Extended
Additional funding will keep the grant for EVs under £37,000 available until 2030.
Impact:
While EV running costs will rise from 2028, upfront incentives and allowances remain strong. Businesses should act now to maximise tax relief on EV purchases and charging infrastructure.
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What Should Businesses Do Now?
• Plan Capital Expenditure:
Review timing of major purchases to benefit from full expensing or the new 40% FYA before WDA drops.
• Fleet Strategy:
Consider EV adoption now to take advantage of grants and allowances before mileage-based taxes start.
• Infrastructure Investment:
Install EV charge points while 100% FYA and business rates relief apply.
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Book a Tax Planning Review with Our Team
We’ll help you model the impact of these changes and create a strategy that maximises allowances and minimises future costs.