What is the Annual Investment Allowance (AIA)?

The Annual Investment Allowance (AIA) allows businesses to deduct the full cost of qualifying plant and machinery from profits in the year of purchase, up to £1 million per year (2025/26). This provides 100% first-year tax relief rather than spreading the deduction over several years using writing-down allowances.

What is the AIA limit for 2025/26?

The Annual Investment Allowance limit for 2025/26 is £1,000,000 (one million pounds). This limit has been permanently set at £1 million since April 2023. Any qualifying plant and machinery expenditure up to this limit can be fully deducted in the year of purchase.

What assets qualify for AIA?

Qualifying assets include: plant and machinery, IT equipment, computers and software, commercial vehicles (not cars), machinery, furniture and fittings, integral features (electrical systems, heating systems, lifts, escalators), and long-life assets. Cars do NOT qualify for AIA — they must use writing-down allowances instead.

Do cars qualify for AIA?

No. Cars do not qualify for the Annual Investment Allowance. They must use writing-down allowances (WDA) instead: 18% for cars with CO2 emissions of 50g/km or less, or 6% for cars with CO2 emissions above 50g/km. Zero-emission cars may qualify for 100% First Year Allowance (FYA) instead.

What are integral features for AIA purposes?

Integral features are parts of a building that can qualify for AIA. They include: electrical systems (wiring, lighting), cold water systems, heating and ventilation systems, lifts and escalators, and external solar shading. These features fall into the special rate pool at 6% WDA if they exceed the AIA limit, but can be claimed under AIA first.

How is AIA tax saving calculated?

AIA tax saving = qualifying expenditure (up to £1 million) multiplied by your tax rate. For example: an asset costing £50,000, with AIA claimed, at 25% corporation tax rate gives a tax saving of £50,000 x 25% = £12,500. The full cost is deducted from profits before calculating the tax liability.

What happens if my asset cost exceeds the AIA limit?

If your asset cost exceeds the remaining AIA limit, the excess goes to a writing-down allowance (WDA) pool. Main pool assets get 18% WDA per year; special rate assets (integral features, long-life assets) get 6% WDA per year. Only the AIA portion gets 100% relief in year one; the balance is written down gradually.

Can I choose which assets to claim AIA on?

Yes. You can allocate AIA to whichever qualifying assets give the greatest tax benefit. Generally, it is most beneficial to claim AIA on special rate pool assets first (since they only get 6% WDA otherwise) before main pool assets (which get 18% WDA). This maximises the present value of your tax relief.

AIA can be claimed by sole traders, partnerships, and companies. Connected parties (e.g. associated companies) may share one AIA limit between them. For groups of companies, the £1 million limit may need to be apportioned. Check with HMRC guidance or a tax adviser if your business has associated companies.

What is the difference between AIA and First Year Allowance?

Both AIA and First Year Allowance (FYA) provide 100% relief in year one. AIA applies to most plant and machinery up to £1 million. FYA applies to specific green assets (zero-emission cars, energy-efficient equipment) with no monetary cap. Assets qualifying for FYA should use FYA rather than AIA to preserve the AIA limit for other assets.

How does AIA affect my tax bill?

AIA reduces your taxable profits in the year of purchase. For example, if profits are £200,000 and you purchase qualifying plant for £80,000, the AIA deduction reduces taxable profits to £120,000. At 25% corporation tax, this saves £20,000 in tax (80,000 x 25%) compared to not making the purchase.

What is the writing-down allowance rate for main pool assets?

The writing-down allowance for main pool assets (plant, machinery, IT equipment, commercial vehicles) is 18% per year on the reducing balance. For example, a £100,000 asset with no AIA claimed: Year 1 WDA = £18,000; Year 2 WDA on remaining £82,000 = £14,760; and so on. It takes many years to fully relieve the cost through WDA alone.

What is the small pool allowance?

If your main pool value (after additions and disposals but before WDA) is £1,000 or less, you can claim the entire pool balance as a small pool allowance rather than just 18% WDA. This clears the pool completely. There is no small pool allowance for the special rate pool.

When should I use AIA vs writing-down allowance?

Always use AIA first if available, as it gives 100% relief in year one versus 18% (or 6%) per year under WDA. The time-value benefit of earlier tax relief is significant. Use AIA strategically on special rate assets first (since WDA is only 6%), then main pool assets (WDA 18%). Only rely on WDA when AIA limit is exhausted.

Are there any restrictions on AIA timing?

AIA can only be claimed on assets purchased and brought into use in the business. For accounting periods spanning a change in AIA limit, the limit must be apportioned. AIA is available for the accounting period in which the expenditure is incurred. You cannot carry back AIA to a previous year.

Can a limited company and its sole trader owner both claim AIA?

If you are a sole trader AND also own a company, you are classed as 'connected persons' and must share one £1 million AIA limit between the sole trade and the company. You can choose how to split the limit between them, but the combined claim cannot exceed £1 million in any 12-month period.

What records do I need to keep for AIA?

Keep: purchase invoices or receipts showing the date, cost and description of the asset; delivery notes; any hire purchase agreements if the asset is financed; details of when the asset was first brought into use; and details of any disposals. HMRC can enquire into capital allowances claims and evidence of qualifying expenditure is essential.

Can I claim AIA on hire purchase assets?

Yes. Assets acquired under hire purchase contracts where you are the economic owner (i.e. you bear the risks and rewards of ownership) qualify for capital allowances including AIA. The AIA is claimed on the full capital cost at the time the asset is brought into use, not spread over the HP repayment period.

Does AIA apply to leased assets?

No. If you lease an asset (operating lease) rather than own it, you cannot claim capital allowances — the lessor claims the allowances instead. Your deduction is the lease payments themselves. Only owned assets (including HP) qualify for AIA and other capital allowances.

What is a long-life asset and how does it affect AIA?

Long-life assets are those with an expected useful life of 25 years or more (e.g. certain specialised machinery). They fall into the special rate pool at 6% WDA. However, they can still qualify for AIA. If you have both long-life assets and other qualifying plant, it is generally more efficient to use AIA on the long-life assets first (since they only get 6% WDA) to maximise year-one relief.

How does AIA work for a short accounting period?

For accounting periods shorter than 12 months, the AIA limit is proportionally reduced. For example, a 6-month accounting period has an AIA limit of £500,000 (6/12 of £1 million). This commonly affects new businesses (first period) or businesses changing their year-end date.

What is balancing allowance and when does it apply?

A balancing allowance arises when a pool is closed — either when the business ceases, or for single-asset pools (special short-life asset elections). It gives relief for the remaining pool balance. In the main pool, there is no balancing allowance while the business continues — any remaining balance simply carries forward and gets 18% WDA each year.

Can I claim AIA on building improvements?

Some building improvements qualify as plant and machinery (particularly integral features like new heating systems, electrical rewiring, lifts, and cold water systems) and can qualify for AIA. Pure structural work (walls, floors, foundations, roof as a structure) is treated as a building and does not qualify for AIA or plant allowances — buildings get structures and buildings allowance (SBA) instead at 3% per year.

How does AIA affect my business profit figure?

AIA reduces your adjusted profits for tax purposes. If your accounting profit is £150,000 and you claim AIA of £80,000, your taxable profit is £70,000. The AIA deduction is shown in your tax computations (CT600 for companies, self-assessment for individuals). The asset cost is still capitalised in your accounts — the AIA only affects the tax computation.

What is the super-deduction and is it still available?

The super-deduction (130% first-year allowance for main pool assets) was available to companies from April 2021 to March 2023 only. It is no longer available from April 2023 onwards. From April 2023, companies can use Full Expensing (100% for main pool, 50% for special rate pool) instead of the super-deduction for unlimited qualifying expenditure.

What is Full Expensing and how does it differ from AIA?

Full Expensing (available to companies from April 2023) provides 100% relief for main pool plant and machinery (similar to AIA) but with no £1 million cap — the entire cost is relieved in year one. Special rate assets get 50% first-year allowance under Full Expensing. Full Expensing applies to companies only; sole traders and partnerships continue to use AIA (capped at £1 million).

What are the AIA limits in prior tax years?

The AIA limit has changed several times: 2008-2010: £50,000; 2010-2012: £100,000; 2012-2014: £25,000; 2014-2015: £500,000; 2015-2018: £200,000; 2018-2021: £1,000,000 (temporary); 2021-2023: £1,000,000 (extended); from April 2023: £1,000,000 permanently. The current permanent £1 million limit provides certainty for business investment planning.

Annual Investment Allowance Calculator 2025/26

Calculate your AIA tax relief on qualifying plant and machinery. 100% first-year deduction on up to £1,000,000 of qualifying expenditure. Cars do not qualify — use WDA instead.

AIA Relief Calculator

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Annual Investment Allowance Explained

The Annual Investment Allowance (AIA) lets businesses deduct the full cost of qualifying plant and machinery from profits in the year of purchase — up to £1,000,000 in 2025/26. This is far more valuable than writing-down allowances (18% per year) because you get the tax relief immediately rather than spread over many years.

What Qualifies for AIA?

Qualifying assets include: plant and machinery, IT equipment, computers, commercial vehicles (not cars), machinery, furniture and fittings, and integral features (electrical systems, cold water systems, heating, lifts). Cars are specifically excluded and must use WDA at 18% or 6%.

AIA vs Writing-Down Allowance

Without AIA, a £100,000 machine would give WDA of only £18,000 in year one (18% of £100,000). With AIA, the full £100,000 is deducted. At 25% tax rate, the year-one tax saving is £25,000 with AIA versus £4,500 with WDA — a benefit of £20,500 in cash flow terms in year one alone.

Strategic Use of AIA

If your total qualifying expenditure exceeds £1 million, apply AIA to special rate pool assets first (those that would otherwise only get 6% WDA), then to main pool assets (18% WDA). This maximises the present value of your tax relief by prioritising the assets with the lowest standard allowance rate.