The Annual Investment Allowance lets most UK businesses deduct the full cost of qualifying plant and machinery from their taxable profits, up to £1,000,000 a year. The £1,000,000 limit is now permanent. It covers items such as machinery, tools, vans, computers and integral features, but not cars or the building itself. Sole traders, partnerships of individuals and companies can all claim. Spend above the limit still qualifies for allowances at the standard writing down rates.
The Annual Investment Allowance, usually shortened to AIA, is one of the most valuable reliefs a growing business can use. Instead of writing off the cost of equipment slowly over many years, you claim 100% of the qualifying cost in the tax year you buy it. That can turn a large purchase into an immediate reduction in your tax bill. This guide explains the limit, what qualifies, who can claim and how the timing works. For the wider picture of how equipment is written off over time, see our guide to capital allowances explained.
How much is the Annual Investment Allowance?
The AIA limit is £1,000,000 per year. After several temporary changes over the years, the government confirmed this figure as permanent, so you can plan capital spending with confidence across the 2025/26 and 2026/27 tax years. The limit applies to a full accounting period of twelve months. If your accounting period is shorter, the allowance is reduced in proportion. A nine month period, for example, gives an allowance of £750,000 rather than the full £1,000,000.
The limit is per business, not per asset, so all your qualifying purchases in the year share the same £1,000,000 ceiling. Groups of companies and businesses under common control usually have to share a single allowance between them.
What qualifies for the Annual Investment Allowance?
AIA covers most plant and machinery: the tools and equipment you keep to run your business. Common examples include:
- Machinery, tools and equipment
- Vans, lorries and other commercial vehicles
- Computers, servers and office equipment
- Business furniture and fittings such as a fitted kitchen or shelving
- Integral features of a building, meaning lifts, escalators, heating and water systems, air conditioning, and electrical and lighting systems
Second hand equipment qualifies just as new equipment does, provided you buy it for use in your business. This is one point where the AIA is more flexible than some other reliefs.
What does not qualify?
Some items are outside the AIA. The main exclusions are:
- Cars, which have their own rules based on carbon dioxide emissions and are treated separately from the AIA.
- The building or structure itself, along with things like doors, gates, bridges and mains water or gas systems.
- Items you owned personally before bringing them into the business, and items given to you as a gift.
Everyday running costs such as stock, rent and wages are not capital at all. Those go through your accounts as allowable business expenses instead of capital allowances.
Who can claim it?
Sole traders, partnerships where every member is an individual, and limited companies can all claim the AIA. A partnership that has a company as one of its members cannot use it. Whether you trade as an individual or through a company changes how the relief interacts with your tax, so it is worth reading our comparison of sole trader vs limited company if you are weighing up a structure. Companies set the allowance against profits chargeable to corporation tax, while the self employed set it against trading profits for income tax.
How does pooling and timing work?
You claim the AIA in the accounting period in which you incur the cost, which is normally when you become committed to the purchase rather than when you pay. Spend that falls within the £1,000,000 limit is deducted in full that year.
Anything above the limit, or on assets you choose not to claim in full, goes into a capital allowances pool and is written off gradually through a writing down allowance. The main pool rate is 18% for expenditure up to April 2026, falling to 14% from 1 April 2026 for companies and 6 April 2026 for the self employed. The special rate pool, which includes integral features, is written down at 6%. Because AIA gives full relief straight away, most businesses use it before falling back on the pooled rates.
How is this different from full expensing?
Full expensing is a separate 100% relief available only to companies, with no annual cap, but it applies only to new and unused main rate plant and machinery. The AIA, by contrast, is open to unincorporated businesses too and covers second hand items and special rate assets such as integral features. Many companies use both: full expensing for new qualifying kit and the AIA for the rest. Our guide to full expensing sets out how the two reliefs sit alongside each other.
Claiming capital allowances correctly is an area HMRC often reviews, especially where large sums are involved. A Solar Protect tax investigation insurance policy covers up to £100,000 of your accountant’s fees with no excess, so a query does not become an expensive distraction. To protect your business, Get a quote.
Reviewed by Matthew Bartlett, Director, Solar Protect. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.