Annual Investment Allowance (AIA) for capital expenditure
Use the £1m AIA to fully expense qualifying plant and machinery against UK taxable profits.
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.
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.
| 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.
AIA vs full expensing vs writing-down allowance
Three regimes can apply to the same asset, and you pick the most beneficial.
| 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 | 18% or 6% 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 18% writing-down allowance on the £500k balance.
Group and timing pitfalls
The £1m cap is shared between connected companies and groups. Period straddling rules pro-rata the cap if your accounting period is shorter than 12 months. Disposal of an asset within the same period creates a balancing charge.
- 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
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 fixed asset modules that compute AIA automatically.