Annual Investment Allowance: £1 Million Explained, With What Qualifies

For most small businesses, £1 million is far more than they'll ever spend on equipment in a year, so in practice AIA means a laptop, a van or a new machine can come off this year's profits in full rather than being written down slowly.

What the AIA covers and what it doesn't

Item	AIA?
Most plant and machinery, such as equipment, computers and tools	Yes, up to the AIA amount
Business vehicles like vans and lorries	Yes, as plant and machinery
Business cars	No, claim writing down allowances instead
Items you owned before you started using them in your business	No
Items given to you or your business	No
Items bought in the final accounting period before the business closes	No, a balancing charge or allowance applies instead

How much is the AIA, and has it always been £1 million?

GOV.UK says the AIA amount is £1 million, and it's been at that level from 1 January 2019. It has changed several times since April 2008, though, and GOV.UK's history table includes £100,000 for 6 April 2010 to 5 April 2012 and £200,000 for 1 January 2016 to 31 December 2018. If the AIA changed during the period you're claiming for, you need to adjust the amount you claim.

The rules that catch people out

1. You get a new allowance for each accounting period, and you can only claim AIA in the period you bought the item.
2. If your accounting period is shorter or longer than 12 months, adjust the AIA. GOV.UK's example: a 9-month period gives 9/12 of £1,000,000, which is £750,000.
3. Periods longer than 18 months, or gaps and overlaps between periods, have different rules.
4. For hire purchase, you can claim for all the payments you'll make under the contract once you start using the item, but not the interest.
5. If you sell an item after claiming AIA, you may need to pay tax.

Personal use reduces the claim

If you're a sole trader or partnership, you can't claim the full value of items you also use outside the business. GOV.UK's example: you buy a laptop for £600 and use it outside your business for half of the time, so your capital allowances are reduced by half.

Who gets an AIA, and how many

Business type	AIA rule
Sole trader or partnership with more than one business or trade	Each business usually gets an AIA
Partnerships	Only available where all the members are individuals
2 or more limited companies controlled by the same person	One AIA between them, shared as they choose

AIA alongside the other capital allowances

AIA isn't the only allowance. GOV.UK's capital allowances guide lists 100% first-year allowances for certain plant and machinery, full expensing and a 50% first-year allowance for qualifying investments from 1 April 2023, and a new 40% first-year allowance for qualifying plant and machinery bought after 1 January 2026. Above the AIA, you claim first-year allowances or writing down allowances, and if a single item takes you over the AIA you can split its value between them.

You also don't have to claim the full cost. If your profits are low, GOV.UK says you can claim writing down allowances instead, or split the cost between AIA and writing down allowances. That can help you avoid wasting the deduction in a year when you'd pay little tax anyway.

How to claim the AIA

1. List every piece of plant and machinery you bought in the accounting period, with the date and cost.
2. Take out business cars, items you already owned before using them in the business, and gifts.
3. Reduce the cost of anything you also use privately, if you're a sole trader or partnership.
4. Check the total against the AIA amount, adjusted if your accounting period isn't 12 months.
5. Decide whether to claim the full amount, or part as AIA and part as writing down allowances.
6. Enter the claim on your tax return for that period.

GOV.UK says you claim on your tax return, which is the Self Assessment return for sole traders and partners, or the Company Tax Return for limited companies.

Cash basis businesses

If you're a sole trader or partnership using the cash basis, GOV.UK says you can only claim capital allowances on business cars. You'd normally deduct equipment as an ordinary expense instead. My guide to allowable expenses for the self-employed covers that route, and whether you can claim AI tools as a business expense looks at software subscriptions.

My verdict

For a small UK business, AIA is the simplest relief you'll get: buy qualifying equipment, deduct it in full this year. Just remember the three exclusions (cars, things you already owned, gifts), cut the claim for personal use if you're a sole trader, and think twice before claiming it all in a low-profit year. Claim it on your tax return for the period you bought the item, and check the tax year dates if your accounting period doesn't match the tax year.

Frequently asked questions

What is the annual investment allowance?

It lets you deduct the full value of qualifying plant and machinery from your profits before tax, up to the AIA amount.

How much is the annual investment allowance?

£1 million, as of October 2026. It has been at that level from 1 January 2019.

Can I claim AIA on a car?

No. Business cars don't qualify for AIA; you claim writing down allowances instead.

Do you have to claim the full AIA?

No. If your profits are low, you can claim writing down allowances instead, or part as AIA and part as writing down allowances.

Can I claim AIA on something bought on hire purchase?

Yes. Once you start using the item you can claim for all the payments you'll make under the contract, but not the interest.

Do two companies get two AIAs?

Not if they're controlled by the same person. GOV.UK says they get one AIA between them and can choose how to share it.

What if my accounting period is less than 12 months?

Adjust the AIA in proportion. For a 9-month period, it's 9/12 of £1,000,000, which is £750,000.