AIA Capital Allowances Summary
The Annual Investment Allowance (AIA) is one of the most generous tax reliefs available to UK businesses, allowing both sole traders and limited companies to write off 100% of the cost of qualifying plant and machinery against taxable profits in the year of purchase.
Understanding the statutory £1,000,000 AIA allowance cap enables business owners to timing asset purchases for maximum tax savings.
⚙️ Statutory AIA Rules & Rates for 2026/27
1. Permanent £1,000,000 Statutory Limit
- 100% Immediate Write-Off: Allows businesses to claim 100% tax relief on up to £1,000,000 of qualifying capital asset purchases per 12-month accounting period.
- Immediate Tax Saving: For a company paying 25% Corporation Tax, spending £100,000 on machinery reduces Corporation Tax by £25,000.00.
2. Qualifying Assets for AIA
AIA can be claimed on both brand-new and second-hand equipment, including:
- Office computers, servers, laptops, and IT hardware.
- Factory machinery, tools, and warehouse equipment.
- Commercial vans, lorries, and delivery vehicles.
- Office furniture, desks, fixtures, and fittings.
3. Excluded Assets & Excess Expenditure
- Car Exclusion: Passenger cars (including electric cars) are strictly excluded from AIA.
- Expenditure Over £1M: Capital expenditure exceeding £1,000,000 enters the 18% Main Rate Pool or 6% Special Rate Pool for standard Writing Down Allowances (WDA).
📊 Practical AIA Worked Examples
Below are two worked calculation examples illustrating AIA tax deductions:
- Total Plant & Machinery Spend: **£150,000.00**
- Statutory AIA Limit: **£1,000,000.00** (Full spend qualifies)
- 100% AIA Tax Deduction: **£150,000.00**
Calculation: Taxable profit reduced by £150,000. Corporation Tax saving (25% rate) = £150,000 × 25% = £37,500.00.
- Total Plant & Machinery Spend: **£1,200,000.00**
- 100% AIA Claimed (Max Cap): **£1,000,000.00**
- Excess Spend (£200,000) entering 18% Main Pool WDA: £200,000 × 18% = **£36,000.00**
Calculation: Total Year 1 Capital Allowance = £1,000,000 + £36,000 = £1,036,000.00. Tax saved = £259,000.00.
📑 Common Pitfalls & AIA Warnings
- Purchasing Passenger Cars: Buying a company car expecting a 100% AIA deduction is a common mistake. Electric cars receive a separate 100% First Year Allowance, while petrol/diesel cars receive 18% or 6% WDAs.
- Sharing £1M AIA Allowance Across Connected Businesses: You only get one £1,000,000 AIA limit to share between multiple limited companies under common control or operating from the same premises.
- Selling AIA-Claimed Assets Later: If you sell an asset that previously received 100% AIA relief, the resale price must be reported as a Balancing Charge, increasing taxable profit in the year of sale.
❓ Frequently Asked Questions (FAQ)
Yes! Sole traders and self-employed partnerships have full access to the £1,000,000 AIA limit to offset equipment purchases directly against their self-employed trading profits.
Limited companies can use Full Expensing for uncapped 100% relief on brand-new main rate machinery. AIA is typically used by limited companies to claim 100% relief on second-hand equipment or special rate assets.
If your company has a short accounting period (e.g. 6 months), the £1,000,000 AIA limit is pro-rated proportionally (e.g. 6/12ths = £500,000 limit).
Yes. Equipment bought on Hire Purchase (HP) qualifies for 100% AIA in the year the contract is signed and the asset is brought into use, even if monthly HP payments continue into future years.