The Annual Investment Allowance (AIA) lets a UK business deduct the full cost of qualifying plant and machinery from its taxable profits in the year of purchase, up to £1 million per year. It is the workhorse of capital allowances for SMEs and sits alongside the more expansive full expensing regime available to companies on new assets. Because AIA is available to sole traders, partnerships and companies alike, it remains the first relief most businesses reach for when they buy equipment.
The AIA is part of the wider suite of reliefs covered in our tax and VAT guidance for UK businesses, and it pairs naturally with planning around your accounting year-end.
What qualifies for AIA
Plant and machinery in the tax sense is broader than its everyday meaning. It captures most physical assets used in the trade, and the boundaries matter because items that fall outside AIA usually attract only a slow writing-down allowance instead.
| Qualifies | Does not qualify |
|---|---|
| Office equipment, computers, servers | Cars (use car allowances instead) |
| Vans, lorries, trailers | Buildings and structures |
| Tools, machinery, plant | Land |
| Integral features (lifts, A/C, lighting) | Items leased out (most cases) |
| Demountable partitions | Items used outside the trade |
| Software (capital, with elections) | Personal-use items |
Both new and used assets qualify for AIA, which is the main reason it remains relevant after full expensing was introduced. Second-hand machinery, refurbished kit and assets bought from a connected party (subject to anti-avoidance rules) can all fall within scope, whereas full expensing is restricted to brand-new assets.
AIA vs full expensing vs writing-down allowance
Three regimes can apply to the same asset, and you pick the most beneficial combination rather than being forced into one.
| Relief | Who | Assets | Rate |
|---|---|---|---|
| Annual Investment Allowance | Sole traders, partnerships, companies | New or used plant and machinery | 100% (up to £1m) |
| Full expensing | Companies only | New main-rate plant and machinery | 100% (uncapped) |
| 50% first-year allowance | Companies only | New special-rate (e.g. integral features) | 50% |
| Writing-down allowance | All | Above the AIA cap | Main-rate or special-rate (6%) percentage per year |
A company spending £1.5m on new IT kit could claim full expensing on the lot. A partnership in the same situation would claim £1m AIA plus the main-rate writing-down allowance on the £500k balance, carrying the unrelieved cost forward across future years. HMRC publishes the current writing-down percentages in its capital allowances guidance.
The order of allocation matters. Where you have a mix of main-rate and special-rate assets, claiming AIA against the special-rate pool first is usually optimal, because those assets would otherwise only attract 6% relief per year.
Group and timing pitfalls
The £1m cap is shared between connected companies and groups, so a group cannot multiply the allowance simply by spreading purchases across subsidiaries. Period-straddling rules pro-rata the cap if your accounting period is shorter than 12 months, and transitional rules apply when the allowance level itself changes mid-period. Disposal of an asset within the same period can create a balancing charge that claws back relief.
- Allocate AIA to special-rate assets first (they otherwise get 6% WDA)
- Document the date of contractual obligation, which fixes the year of claim
- Mind the partnerships with corporate members rule
- Keep manufacturer invoices showing serial numbers and delivery dates
- Update the fixed asset register as you claim
- Recover any partial VAT in line with normal rules
Planning around your year-end
AIA is a timing tool as much as a relief. Bringing a purchase forward by a few days, or pushing it past the year-end, can move the full deduction into a more profitable period. Match this against your Corporation Tax payment deadlines so the cash-flow benefit lands when you need it.
Closing thoughts
AIA can shave thousands off your tax bill if you plan capital purchases around your year-end. Pair this with our capital allowances for UK businesses article, the corporation tax CT600 filing guide, and our year-end checklist. Cross-check claims against the HMRC Capital Allowances Manual. See pricing for an asset register that records the cost and purchase date of every asset.