Key facts
- The AIA provides a 100% deduction in the year of purchase for qualifying plant and machinery.
- The permanent limit is £1 million per year (since 1 January 2019).
- Cars are excluded from AIA — claim first-year allowances or writing down allowances instead.
- For short accounting periods, the £1 million limit is proportionally reduced.
- AIA is available to companies, sole traders, and partnerships alike.
How the AIA Gives Immediate Tax Relief on Assets
The Annual Investment Allowance (AIA) allows a business to deduct the full cost of qualifying plant and machinery from its taxable profits in the year the expenditure is incurred. It is the most generous form of capital allowance available to most companies.[1]
The AIA has been permanently set at £1,000,000 per year since 1 January 2019. This means most small and medium-sized companies can write off the entire cost of their capital purchases immediately.
What Qualifies for AIA?
AIA covers most types of plant and machinery, including:[1]
- Computers, servers, and IT equipment
- Office furniture and fittings
- Manufacturing machinery and production equipment
- Tools and specialist equipment
- Vans, lorries, and commercial vehicles (but not cars)
- Integral features of buildings (electrical systems, lifts, heating, water systems)
- Thermal insulation added to existing business premises
Items Excluded from AIA
The following do not qualify for AIA:[2]
- Cars — claim first-year allowances (100% for zero-emission) or writing down allowances instead
- Items given as gifts to the business
- Assets purchased from a connected person (where previously used by that person)
- Assets brought into the business from personal use
Why are cars excluded? Cars have their own capital allowance regime based on CO2 emissions: zero-emission cars qualify for 100% first-year allowances, low-emission cars (≤50 g/km) go into the main rate pool (18%), and higher-emission cars go into the special rate pool (6%).[3]
How AIA Works in Practice
When you claim AIA, the qualifying expenditure is deducted in full from your taxable profits. It does not enter a capital allowance pool, so there is no need to track a reducing balance for those assets. The claim goes in the capital allowances section of the CT600, which you can prepare and file with GoFile.
| Scenario | Treatment |
|---|---|
| Spend ≤ £1 million on qualifying plant & machinery | Claim 100% AIA — the full cost is deducted from taxable profits in the period of purchase |
| Spend > £1 million on qualifying plant & machinery | Claim AIA on the first £1 million; the excess goes into the appropriate WDA pool (main rate or special rate) |
| Short accounting period (e.g. 6 months) | AIA limit is proportionally reduced: 6/12 × £1,000,000 = £500,000 |
Tip: If your company is approaching the £1 million limit, consider the timing of purchases carefully. Expenditure incurred just before or after an accounting period end can affect which period’s AIA is used.
AIA for Groups & Related Companies
Important restrictions apply where companies are part of a group or are related:[2]
- A group of companies (companies under common control) shares a single AIA of £1 million between them — not £1 million each
- The group must allocate the AIA between its members in whatever proportion it chooses, but the total cannot exceed £1 million
- This also applies to companies controlled by the same person
AIA vs Full Expensing
Since April 2023, companies can also claim full expensing (100% first-year allowance) on new main-rate plant and machinery. The key differences are:
| Feature | AIA | Full Expensing |
|---|---|---|
| Rate | 100% | 100% (main rate) / 50% (special rate) |
| Annual limit | £1 million | No limit |
| New or used assets | Both new and second-hand | New assets only (not second-hand) |
| Available to | Companies, sole traders, partnerships | Companies only |
| Balancing charge on disposal | Only if pool goes negative (rare) | Yes — disposal value is a balancing charge |
Frequently Asked Questions
What is the Annual Investment Allowance limit?
The AIA limit is permanently set at £1,000,000 per year since 1 January 2019. This allows most small and medium-sized companies to write off the full cost of qualifying plant and machinery purchases immediately.
Can I claim AIA on a car?
No. Cars are excluded from AIA. Instead, you claim first-year allowances (100% for zero-emission cars) or writing down allowances based on the vehicle’s CO2 emissions.
Is the AIA limit reduced for short accounting periods?
Yes. The £1 million AIA limit is proportionally reduced for short accounting periods. For example, a 6-month period would have an AIA limit of £500,000.
Do group companies each get their own AIA?
No. A group of companies under common control shares a single £1 million AIA between them. The group can allocate the AIA among its members in any proportion, but the total cannot exceed £1 million.
What is the difference between AIA and full expensing?
Both give 100% tax relief, but AIA is capped at £1 million and covers new and second-hand assets. Full expensing has no cap but only applies to new assets purchased by companies.
Further Reading
- Capital Allowances Overview — all types of capital allowance at a glance
- Full Expensing — the unlimited 100% FYA for companies on new assets
- Writing Down Allowances — for expenditure that exceeds the AIA limit
- Balancing Charges & Disposals — what happens when you sell AIA-claimed assets
- Taxable Profits Explained — how capital allowances fit into the tax computation
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