Annual Investment Allowance Calculator

The Annual Investment Allowance (AIA) provides a 100% first-year tax deduction on qualifying expenditure on plant and machinery, up to the current limit of £1,000,000 per year. The full cost of qualifying assets is deducted from your taxable profits in the year of purchase, rather than being spread over multiple years through writing down allowances. The AIA applies per business, not per asset, so a single £1M cap covers all qualifying purchases combined.

Qualifying expenditure includes most tangible assets used in the business such as machinery, tools, computers, office furniture, vans, and certain fixtures in buildings. Cars are excluded from AIA, as are assets given to the business or purchased for non-business use. Where expenditure exceeds the £1M annual limit, the excess is allocated to the main or special rate writing down allowance pool at 18% or 6% respectively.

For accounting periods that straddle two AIA limit periods or that are shorter or longer than 12 months, the allowance is proportionally adjusted. A 6-month accounting period would carry a £500,000 AIA limit. The deduction directly reduces your Corporation Tax or Income Tax bill by lowering the profit figure on which tax is computed.

AIA — Annual Investment Allowance 2026. Permanent £1,000,000/year (since April 2023). 100% first-year deduction on qualifying plant and machinery. Sole traders, partnerships, limited companies all eligible. Sample: £80k machinery purchase = £80k immediate tax deduction. Higher-rate company (25% CT) saves £20k tax immediately vs spreading over years.

What qualifies for AIA. Plant and machinery: factory equipment, computers, software, tools, fixtures, lorries. CARS DO NOT qualify (use Writing Down Allowance instead — 18% main rate, 6% special rate). Excluded: buildings (use Structures and Buildings Allowance 3%/year), shares, intangibles. Second-hand assets: eligible. Cars rare exception: zero-emission cars (electric) qualified for 100% First Year Allowance until April 2026.

Full Expensing — separate from AIA. Companies only (not sole traders). 100% first-year deduction with NO £1M cap. Permanent from April 2026 (was temporary 2023-2026). Main rate assets: 100% expensing. Special rate (long-life, integral features): 50% first year + 6% reducing balance thereafter. Cars: still excluded. Combine with AIA strategically — AIA for partnerships/sole traders; Full Expensing for ltd companies.

Common AIA mistakes. (1) Buying car and claiming AIA — DISALLOWED, use Capital Allowances at 18%/6%. (2) Forgetting to claim — must elect on Self Assessment / CT600 each year. (3) Claiming on integral features (lighting, heating, lifts) wrong rate — special rate pool 6% not 18%. (4) Asset disposal: balancing charge can claw back AIA if asset sold within years. (5) Partial trader: AIA proportional if mixed business use.

Tax planning with AIA. Time purchases to maximise relief: buy near year-end if approaching profit threshold. Sample £200k profit company: £80k machinery → tax bill £30k (25% × £120k); without machinery £50k tax — saved £20k. Hire purchase: AIA claimable on full price at start (even if paying installments). Lease (operating): tax-deductible as expense, not AIA. Always: keep invoices, asset register, depreciation records for 5 years.