The annual investment allowance (AIA) lets you deduct the full cost of qualifying equipment from your taxable profits in the year you buy it, up to £1,000,000. Spend £40,000 on machinery and you cut your taxable profit by the whole £40,000 straight away, rather than spreading it over several years. You claim it on your Self Assessment or Company Tax Return.
In short: the AIA is a 100% first-year tax relief on most plant and machinery, and for 2026/27 the limit stays at £1 million.
How much is the annual investment allowance for 2026/27?
The AIA limit is £1,000,000 per year, and it is now permanent at this level. That covers nearly every small and medium business in the UK comfortably, very few will spend more than a million on equipment in a single year.
The allowance is per business, not per item. A sole trader, a partnership and a limited company each get their own £1m, though companies under common control may have to share a single allowance between them.
What equipment qualifies for AIA?
AIA covers most "plant and machinery", the tools and equipment you use to run the business. Common qualifying purchases include:
- Machinery, tools and workshop equipment
- Computers, servers, printers and office IT
- Vans, lorries and other commercial vehicles
- Office furniture, desks and shelving
- Integral building features (lifts, heating, air conditioning, wiring)
- Agricultural and construction equipment
What does not qualify for AIA?
| Qualifies for AIA | Does not qualify for AIA |
|---|---|
| Vans and commercial vehicles | Cars (use writing-down allowances instead) |
| Computers, tools, machinery | Items you owned before business use |
| Office furniture and fittings | Buildings, land and structures |
| Integral fixtures (lifts, heating) | Items given to you as a gift |
The main exception to remember is cars, they never qualify for AIA. Cars get separate capital allowances based on their CO₂ emissions, which is one reason low-emission electric vehicles remain popular as a separate planning route, since a low-emission company car attracts just a 4% benefit-in-kind charge.
How do I claim the annual investment allowance?
You claim AIA on the tax return for the accounting period in which you bought the asset:
- Sole traders and partnerships claim it in the capital allowances section of the Self Assessment return.
- Limited companies claim it on the CT600 Company Tax Return.
The expenditure date is normally when you become legally obliged to pay, usually the invoice date, or the date a contract is signed. If you buy on hire purchase, you can usually claim the full cost once the asset is in use, even though you are still paying instalments.
For the official rules and current limit, see HMRC's guidance on the annual investment allowance.
AIA vs full expensing, which applies to me?
Both give 100% relief, but they apply to different taxpayers:
- AIA is available to sole traders, partnerships and companies, up to the £1m limit. It covers both new and second-hand equipment.
- Full expensing is for limited companies only, has no upper cap, but applies only to brand-new main-rate plant and machinery.
For most small companies the practical difference is slight, because the £1m AIA already covers their spend. If you are unsure which gives the better result, our corporation tax services can model both against your profit forecast.
A worked example: claiming AIA on a £43,000 spend
Sukhi runs a limited company with £120,000 of taxable profit. During the year she buys a £35,000 commercial van and £8,000 of workshop equipment, £43,000 of qualifying spend.
- Profit before allowances: £120,000
- Less AIA claim: £43,000
- Revised taxable profit: £77,000
At the 25% main rate of corporation tax, that £43,000 deduction saves roughly £10,750 in tax, in the same year she made the purchase.
Should I time my equipment purchases?
Timing matters. Because the allowance is annual, bringing a purchase forward into the current period accelerates the relief; pushing it back delays it. Watch the boundaries:
- If your accounting period is shorter than 12 months, the £1m limit is reduced pro-rata (a 9-month period gets £750,000).
- Buying just before your year-end pulls the relief into the current return.
- There is no benefit to claiming AIA in a loss-making year if you cannot use the relief, you may prefer to claim writing-down allowances instead and carry the value forward.
Frequently Asked Questions
Can I claim AIA on a second-hand machine?
Yes. AIA applies to both new and used plant and machinery, so buying a quality second-hand asset still gives you 100% relief up to the limit. This is one advantage AIA has over full expensing, which is restricted to new assets only.
Does the annual investment allowance cover cars?
No. Cars are specifically excluded from the annual investment allowance. They are relieved through writing-down allowances at a rate that depends on the car's CO₂ emissions. Vans and other commercial vehicles, however, do qualify for AIA.
What happens if I spend more than £1 million?
Spending above the £1m limit is unusual for a small business, but if it happens, the excess does not qualify for AIA. Companies can often relieve the extra through full expensing; otherwise the balance goes into a pool and attracts writing-down allowances each year instead.
Do I have to claim the full allowance in one year?
No. AIA is a claim, not an automatic deduction, so you can claim all, part or none of it. In a low-profit or loss-making year it can be more efficient to claim less now and keep the value in your capital allowances pool for future years. You can find more answers on our FAQ page.
Equipment relief is one of the easiest wins to get wrong, a misdated invoice or a car claimed as plant can cost you. If you would like us to check that your purchases qualify and time them for the biggest tax saving, get in touch and we will review them with you.
