What is the Annual Investment Allowance (AIA)?

Full answer

The Annual Investment Allowance (AIA) is a capital allowance that lets businesses deduct the full cost of qualifying capital expenditure in the year it is incurred, rather than spreading it over multiple years. **2026/27 AIA limit:** £1,000,000 per year (permanent, confirmed in the 2021 Autumn Budget) **Who can claim:** - Sole traders and partnerships (as well as limited companies) - Most businesses — some exclusions apply (certain related-party transactions, mixed partnerships) - The £1,000,000 limit is shared between connected companies/partnerships **What qualifies for AIA:** - Plant and machinery (equipment, tools, fixtures) - Commercial vehicles (vans, lorries — but NOT cars) - Machinery and processing equipment - Integral features (electrical systems, water systems) in buildings - Agricultural machinery **What does NOT qualify:** - **Land** and most **buildings** (use Structures and Buildings Allowance — 3%/year instead) - **Cars** (use the 18% main pool writing-down allowance, or 100% for zero-emission cars) - Assets bought for leasing (some exclusions) **Writing-Down Allowances (WDA) for excess:** - **Main pool:** 18%/year on reducing balance - **Special rate pool (long-life assets, thermal insulation):** 6%/year **Full Expensing (for limited companies):** From April 2023 (permanent), limited companies can claim **100% Full Expensing** on qualifying main pool plant and machinery — this is more powerful than AIA for companies as it has no monetary cap. **Partial year pro-rating:** If a business has an accounting period shorter than 12 months, the AIA is pro-rated proportionally.

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