Annual Investment Allowance (AIA): GBP 1 Million Relief on Business Assets 2026/27

Capital investment in plant and machinery can be expensive -- but the UK tax system offers generous relief to encourage businesses to invest. The Annual Investment Allowance (AIA) lets you deduct the full cost of qualifying assets up to GBP 1,000,000 in the tax year you buy them, rather than spreading the relief over many years.

For 2026/27 the AIA limit remains permanently set at GBP 1 million -- the figure was made permanent by the Government in 2023 after years of temporary increases. Here is everything you need to know about how it works.

What Is the Annual Investment Allowance?

The AIA is a first-year capital allowance. Instead of writing off an asset's cost over its useful life, you claim the entire purchase price as a tax deduction in Year 1 -- provided the total qualifying spend does not exceed GBP 1 million.

This directly reduces your taxable profit. For a company paying corporation tax at 25%, a GBP 100,000 AIA claim saves GBP 25,000 in tax in the current year rather than GBP 4,500 in Year 1 under writing down allowances.

Who Can Claim AIA?

AIA is available to:

• Sole traders
• Partnerships (including limited liability partnerships)
• Limited companies
• Most other businesses with a UK tax presence

The GBP 1 million limit is per business entity. If you own multiple separate businesses, each can potentially claim up to GBP 1 million -- but connected businesses and companies under common control may have the limit split between them.

Qualifying Plant and Machinery

AIA covers most plant and machinery used in the business. This includes:

• Office equipment (computers, printers, desks, chairs)
• Manufacturing and workshop machinery
• Commercial vehicles (vans, lorries, forklift trucks)
• Fixtures and fittings in business premises
• Servers and IT infrastructure
• Agricultural equipment

Assets That Do NOT Qualify for AIA

Several categories are excluded:

• Cars -- these go into capital allowance pools and receive writing down allowances
• Assets purchased in the final accounting period of a business
• Assets acquired from connected parties (in certain circumstances)
• Assets that were previously used personally before being introduced to the business

Cars: Writing Down Allowances Apply

Cars are the most notable exclusion from AIA. Instead, they attract writing down allowances (WDA):

• Main pool (18% WDA per year): Cars with CO2 emissions of 50g/km or less (but above zero-emission threshold)
• Special rate pool (6% WDA per year): Cars emitting more than 50g/km
• First-year allowance (100%): Qualifying zero-emission vehicles -- a separate and very generous relief

The Super-Deduction: Gone Since April 2023

The super-deduction -- a temporary 130% first-year allowance available to companies from April 2021 -- ended on 31 March 2023. It was replaced by full expensing for incorporated companies.

Full Expensing for Companies

Since April 2023, companies (but not sole traders or partnerships) can claim 100% first-year allowances on qualifying main pool plant and machinery through full expensing -- with no GBP 1 million cap. A 50% first-year allowance applies to special rate pool assets.

This means for companies with capital expenditure above GBP 1 million, full expensing fills the gap above the AIA limit. The two reliefs are complementary.

Writing Down Allowances: The Default Fallback

Where expenditure exceeds the AIA limit, or for assets that don't qualify for AIA, writing down allowances apply on a reducing balance basis:

• Main pool: 18% per year (computers, most machinery, main-pool cars)
• Special rate pool: 6% per year (integral features, long-life assets, higher-emission cars)

For a GBP 50,000 machine claimed under WDA at 18%:

• Year 1: GBP 9,000 deduction; pool value GBP 41,000
• Year 2: GBP 7,380 deduction; pool value GBP 33,620

You can see it takes many years to fully relieve the cost -- which is why AIA is so much more valuable.

The Small Pools WDA

When the value of the main pool or special rate pool falls below GBP 1,000, you can write off the entire balance in one year -- the small pool WDA. This avoids years of tiny deductions on an almost-fully-depreciated pool.

Timing Matters: When Does AIA Apply?

AIA applies to expenditure in the accounting period in which it is incurred. For most businesses this aligns with the tax year, but timing can matter if your accounting period straddles a change in AIA limits (which has happened several times historically).

Generally, the safest approach is to make significant capital purchases early in your accounting period to ensure they clearly fall within the correct year's AIA entitlement.

How to Claim

• Sole traders and partnerships: Claim on the capital allowances pages of your Self Assessment return (SA104 or SA105).
• Limited companies: Claim on your CT600 corporation tax return under capital allowances.
• You do not need HMRC approval in advance -- simply include the claim in your return and retain purchase invoices as evidence.

A Practical Example

A small manufacturing company spends GBP 300,000 on new machinery in 2026/27. Its taxable profit before this is GBP 500,000.

• AIA claim: GBP 300,000 (well within the GBP 1 million limit)
• Adjusted profit: GBP 500,000 - GBP 300,000 = GBP 200,000
• Corporation tax at 19% (small profits rate): GBP 38,000
• Without AIA (WDA at 18% = GBP 54,000 deduction): Tax on GBP 446,000 = GBP 84,740

Tax saved by using AIA: GBP 46,740 in Year 1.

Use our Capital Allowances calculator to model your own scenario and see how AIA compares to writing down allowances.