# What is the Annual Investment Allowance?

Last updated: 12 February 2026
Category: Tax Relief

**Quick answer:** The Annual Investment Allowance (AIA) lets businesses claim 100% tax relief on qualifying capital expenditure up to £1 million per year. It covers plant and machinery purchases.

## Detailed explanation

**Annual Investment Allowance (AIA)**:

**Current limit**: £1,000,000 per year (permanent from April 2023)

**What qualifies**:
- Plant and machinery
- Computer equipment
- Office furniture
- Vehicles (excluding cars)
- Tools and equipment
- Some fixtures in buildings

**What doesn't qualify**:
- Cars (use Writing Down Allowance instead)
- Buildings themselves
- Land
- Items given to you
- Items leased to others

**How it works**:
- Deduct 100% of qualifying cost from profits in year of purchase
- Reduces Corporation Tax bill
- Example: £10,000 computer equipment = £10,000 deduction = £2,500 tax saving (at 25%)

**Exceeding the limit**:
If you spend over £1m, excess goes into 'pools' and qualifies for Writing Down Allowance (18% or 6% per year depending on type).

**Timing**:
- Asset must be bought and available for use
- For accounting periods straddling April, limit is apportioned
- Group companies share the £1m limit

**Full expensing (from April 2023)**:
For companies, you can also claim 100% relief on new qualifying plant and machinery with no limit, as an alternative to AIA. This is particularly useful for spending over £1m.

Source: HMRC Capital Allowances

## Real-world examples

### New Manufacturing Equipment

Your limited company, a small manufacturing business, purchases new CNC milling machines for £600,000. You can deduct the full £600,000 from your profits using the AIA in the year of purchase, significantly reducing your corporation tax liability.

### Office Refurbishment

You spend £80,000 on office furniture, computer equipment, and a new server for your growing marketing agency. Because this is all qualifying expenditure, you can claim the entire £80,000 against your taxable profits in the current accounting period using the AIA.

### Expanding a Restaurant Kitchen

You invest £1,200,000 in new kitchen equipment for your restaurant expansion. You can claim £1,000,000 through AIA, and the remaining £200,000 will be eligible for writing down allowance at the appropriate rate.

## Common mistakes to avoid

- Forgetting to claim the AIA on your corporation tax return, resulting in paying more tax than necessary.
- Assuming that all assets qualify for AIA – remember cars, land, and buildings are specifically excluded.
- Not keeping detailed records of asset purchases, making it difficult to justify your AIA claim to HMRC if audited.
- Failing to pro-rate the AIA if your accounting period is less than 12 months.

## Frequently asked questions

### If I buy an asset partway through the year, does that affect my AIA?

No, the AIA is a full annual allowance, irrespective of when during your accounting period the purchase occurs. You can claim up to £1,000,000 regardless of purchase timing.

### What happens if I sell an asset I previously claimed AIA on?

When you sell the asset, you may have to declare a balancing charge which will increase your taxable profit. This recoups some or all of the tax relief you previously claimed. Seek professional advice.

### Can I claim AIA on second-hand equipment?

Yes, you can claim AIA on second-hand equipment as long as it is plant and machinery and meets the other eligibility criteria. The fact it is pre-owned is irrelevant.

### If I don't use the full £1,000,000 AIA in one year, can I carry it forward?

No, the Annual Investment Allowance cannot be carried forward to future tax years. Use it or lose it in the current accounting period.

### Can I claim AIA on items I buy for personal use but sometimes use for business?

No, the AIA is only for items wholly and exclusively for business use. If there is a personal element, you need to apportion the costs, and you may not be able to claim AIA on the personal portion.

## Practical tips

- Keep detailed records of all asset purchases, including invoices, dates of purchase, and descriptions of the items to support your AIA claim.
- Review your planned capital expenditure at the beginning of each accounting period to maximize your use of the AIA. Consider bringing forward or delaying purchases to optimize your tax position.
- When preparing your corporation tax return (CT600), clearly identify the amount of AIA claimed and ensure it aligns with your supporting documentation.
- Consult with a qualified accountant or tax advisor to ensure you are claiming the AIA correctly and maximizing your tax savings, especially for complex or high-value purchases.

## Related questions

- [Can I buy a car through my company?](https://accounts-os.com/questions/can-i-buy-a-car-through-my-company)