AIA in a short or long accounting period

The £1 million annual investment allowance is a maximum for a 12 month chargeable period, and section 51A(6) of the Capital Allowances Act 2001 scales it up or down in proportion when the period is longer or shorter. The hard part is working out what the chargeable period actually is: a company can never have one longer than 12 months, while a sole trader or partnership uses its period of account, which can run to 18 months before it has to be split.

What is the basic rule?

Section 51A(5) sets the maximum annual investment allowance (AIA) at £1,000,000, and GOV.UK confirms this has been the amount since 1 January 2019. Section 51A(6) then says that if the chargeable period is more or less than a year, the maximum is proportionately increased or reduced. GOV.UK’s example is a 6 month period with a maximum of £500,000.

HMRC accepts either a daily or a monthly calculation where the period is made up of whole calendar months; otherwise the apportionment must be done on a daily basis (CA23085). Two other rules sit alongside the pro rata limit:

• the AIA can only be claimed for the chargeable period in which the expenditure is incurred, so an unused amount cannot be carried forward (section 51A(2) and CA23085);
• no AIA is available for expenditure in the chargeable period in which the qualifying activity is permanently discontinued (section 38B, general exclusion 1).

For the general rules on what qualifies, see how the annual investment allowance is calculated.

What counts as the chargeable period?

Section 6 of the Act defines a chargeable period as an accounting period for corporation tax, and a period of account for income tax. For a trader, the period of account is the period for which accounts are drawn up. That difference drives most of the outcomes below.

Business	Chargeable period	Longest possible
Company	Corporation tax accounting period	12 months (CTA 2009 s10)
Sole trader or partnership	Period of account	18 months; anything longer is split under section 6(6)

How does it work for a company with long accounts?

A company’s accounting period ends at the earliest of 12 months from its start, its accounting date, starting or ceasing to trade, entering or leaving administration and several other events listed in section 10 of the Corporation Tax Act 2009. GOV.UK says that where accounts cover more than 12 months, the company must file two returns because the accounting period cannot be longer than 12 months.

So a company never gets an increased AIA. A 15 month set of accounts produces a 12 month accounting period with the full £1 million and a 3 month accounting period with a maximum of £250,000. Each item of spending belongs to the accounting period in which it is incurred, which makes the timing of a large purchase important. See changing a company year end and corporation tax limits for short accounting periods for the other consequences of a long or short period.

How does it work for a sole trader or partnership?

An unincorporated business uses its period of account, so the result depends on its length:

• Up to 18 months. One chargeable period, with the maximum scaled up. CA23085 gives an 18 month period a maximum of £1.5 million.
• Longer than 18 months. Section 6(6) treats the period as divided into separate periods, the first starting on the original start date and each later one on an anniversary of it, so that none is longer than 12 months. GOV.UK’s guidance, updated on 1 April 2026, says to work out the allowances for each part, applying the short period rules to the last part.
• Overlapping periods. If two periods of account overlap, or one includes another, the common period is treated as part of the first period only (section 6(4)).
• A gap. If there is a gap between two periods of account, the gap is treated as part of the first period (section 6(5)).

These rules fix the capital allowances computation for each period of account. How the resulting profit is then taxed under the tax year basis is a separate step; see basis period reform.

Are other allowances adjusted in the same way?

Writing down allowances and the small pools allowance are also scaled up or down by the length of the period (CA23220 and GOV.UK). GOV.UK gives a 187 day period with a £2,000 main pool: £2,000 at 14% is £280, restricted to 187/365 of that, so about £143. First year allowances are different. GOV.UK says they are not reduced for a short period and not increased for a long one, provided the business is still trading at the end of the period. For a company buying new main rate plant in a short period, full expensing or another first year allowance may therefore cover spending that the reduced AIA cannot.

What if the business is in a group or has related businesses?

Companies in a group, or related companies under common control, share a single £1 million allowance for chargeable periods ending in the same financial year and can allocate it as they choose (sections 51C to 51E). Section 51K(6) adds a limit: the amount allocated to a company’s expenditure in a chargeable period cannot exceed the maximum that company would have had on its own under section 51A(5) and (6). A group member with a 6 month accounting period can therefore take no more than £500,000 of the shared allowance. The sharing rules are covered in AIA for groups and related businesses.

What do the calculations look like?

Illustration only.

1. Company with 15 month accounts. Kite Ltd changes its year end and draws up accounts from 1 January 2026 to 31 March 2027. Its accounting periods are 1 January 2026 to 31 December 2026 (AIA maximum £1,000,000) and 1 January 2027 to 31 March 2027 (3/12 × £1,000,000 = £250,000). It buys a £600,000 machine in February 2027. AIA covers £250,000; the rest is relieved by any first year allowance it qualifies for, or by writing down allowances. Had it bought the machine in December 2026, the full cost would have fallen within the first period’s £1 million.
2. Sole trader with a 20 month first period. Ola starts trading on 1 June 2025 and makes up her first accounts to 31 January 2027. Section 6(6) splits this into 1 June 2025 to 31 May 2026 (maximum £1,000,000) and 1 June 2026 to 31 January 2027 (8/12 × £1,000,000 = £666,667). Each purchase is matched to the part in which it was incurred.
3. Partnership with an 18 month period. A partnership’s single 18 month period of account gives a maximum of £1,500,000, as in CA23085.
4. Overlapping periods. A trader’s accounts run to 30 September 2025, and the next set covers 1 April 2025 to 31 March 2026. The overlapping six months belong to the first period only, so the second chargeable period is 1 October 2025 to 31 March 2026, with a maximum of £500,000.

Which mistakes come up most often?

• Claiming £1.25 million for a company’s 15 month accounts instead of £1 million and a separate short period allowance.
• Treating a sole trader’s 20 month period as one chargeable period instead of splitting it under section 6(6).
• Counting an overlap twice or ignoring a gap between periods of account.
• Time apportioning first year allowances, which are given in full.
• Claiming AIA in the period the business ceases; see ceasing self employment for the balancing adjustments instead.
• Allocating a group’s shared allowance to a short period company above its own pro rata maximum.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

• Comparatives for a short or long period
• Corporation tax limits for short accounting periods
• Accounting periods vs periods of account
• Long first accounts: splitting into two tax returns
• Sharing the AIA between related businesses

Sources

• legislation.gov.uk: Act 2001 c. 2, section 51A
• GOV.UK: Annual investment allowance
• GOV.UK: Manual page CA23085
• legislation.gov.uk: Act 2001 c. 2, section 38B
• legislation.gov.uk: Act 2001 c. 2, section 6
• legislation.gov.uk: Act 2009 c. 4, section 10
• GOV.UK: Corporation tax accounting period
• GOV.UK: Capital allowances accounting periods which are more or less than a ye
• GOV.UK: Manual page CA23220
• legislation.gov.uk: Act 2001 c. 2, section 51C

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.