Glossary · UK
What is Annual Investment Allowance (AIA)?
A capital allowance giving 100% same-year tax relief on qualifying plant and machinery up to GBP 1 million.
Full Definition
The Annual Investment Allowance lets businesses deduct the full cost of qualifying plant and machinery from taxable profits in the year of purchase, up to a GBP 1 million annual limit. Qualifying items include tools, equipment, machinery, computers, vans and integral building features, but not cars or items bought to lease out. Sole traders, partnerships and companies can claim, giving immediate relief rather than spreading deductions over several years. Spending above the GBP 1 million limit goes into the writing-down allowance pools instead. The relief reduces taxable profit, so the cash benefit depends on your tax rate, for example Corporation Tax at 19% to 25% or Income Tax bands for sole traders. Timing of purchases can matter for accounting periods. Always confirm current rules and eligible assets on gov.uk before claiming.
How Annual Investment Allowance (AIA) is calculated
tax_saved = min(qualifying_spend, 1000000) x tax_rate- qualifying_spend
- Cost of qualifying plant and machinery in the period
- tax_rate
- Marginal Corporation Tax or Income Tax rate
Worked example: A company spends GBP 40,000 on equipment and pays 19% Corporation Tax: tax saved = 40,000 x 0.19 = GBP 7,600.