Key takeaways
- The Annual Investment Allowance (AIA) gives 100% tax relief on up to £1 million a year of qualifying plant and machinery.
- It is available to companies, sole traders and partnerships made up of individuals, on new and second-hand assets.
- Cars do not qualify; vans, equipment, machinery, computers and many fixtures do.
- Companies can also use full expensing on new main-pool assets without limit, and the 40% first-year allowance from 2026 covers leased assets.
- Groups and businesses under common control share a single £1 million allowance.
The Annual Investment Allowance (AIA) lets businesses deduct the full cost of most equipment and machinery from their profits in the year they buy it, up to £1 million a year. For the vast majority of small and medium-sized businesses, that means all their plant and machinery spending is relieved immediately.
How much is the AIA?
The AIA has been fixed at £1 million a year since 1 January 2019, and was made permanent from April 2023. It is unchanged for 2026/27.
Who can claim
- limited companies
- sole traders
- partnerships whose members are all individuals
Partnerships with a company as a member, and trusts, cannot claim the AIA.
What qualifies
The AIA applies to plant and machinery, new or second-hand, bought for use in the business. Examples:
- tools, equipment and machinery
- vans, lorries, tractors and other commercial vehicles
- computers, servers and office equipment
- furniture for business premises
- integral features of buildings: electrical and lighting systems, cold water systems, heating and air conditioning, lifts and escalators
- some fixtures, such as kitchen and bathroom fittings in commercial premises
It can be used against special rate expenditure (such as integral features and long-life assets) as well as main-rate expenditure. Because special rate assets otherwise only get 6% a year, businesses usually allocate the AIA to those first.
What does not qualify
- cars, including company cars for directors, which get writing down allowances (or a 100% first-year allowance if zero-emission)
- buildings, land and structures (the Structures and Buildings Allowance gives 3% a year instead)
- assets given to you or brought in from personal use, which are added at market value but cannot use the AIA
- expenditure in the period in which the business permanently ceases
Example
A building firm with a December year end buys in 2026:
- two new vans for £70,000
- tools and equipment for £18,000
- a director’s car for £45,000
- an air-conditioning upgrade for its office for £22,000
The AIA covers the vans, tools and air conditioning in full: £110,000 is deducted from profits. The car is added to the main or special rate pool depending on its CO2 emissions. At a 25% Corporation Tax rate, the AIA saves £27,500 of tax in the year.
Groups and related businesses
- A group of companies shares one £1 million AIA, which it can allocate between companies as it chooses.
- Companies under common control that are related (sharing premises or carrying on similar activities) also share one allowance.
- Unrelated businesses controlled by the same person can each have their own AIA.
Accounting periods longer or shorter than a year
The £1 million is for a 12-month period. For shorter periods it is reduced proportionately: a six-month period has an AIA of £500,000.
AIA, full expensing and first-year allowances
| Allowance | Who | What | Rate |
|---|---|---|---|
| Annual Investment Allowance | Companies and unincorporated businesses | New and second-hand plant, main and special rate | 100% up to £1 million |
| Full expensing | Companies only | New and unused main-rate plant and machinery | 100%, no limit |
| 50% first-year allowance | Companies only | New and unused special rate assets | 50% |
| 40% first-year allowance | Companies and unincorporated businesses, including leasing | New main-rate plant and machinery, from 1 January 2026 | 40% |
| 100% first-year allowance | All | New zero-emission cars and electric vehicle charge points (to March and April 2027) | 100% |
For most small businesses the AIA is enough. Larger companies spending over £1 million use full expensing for the excess on new main-rate assets. See capital allowances.
Disposals
If you sell an asset that you claimed the AIA on, the sale proceeds (up to the original cost) are deducted from the pool, which can create a balancing charge that adds to taxable profits. For assets on which full expensing was claimed, the whole proceeds are taxed as a balancing charge.
Frequently asked questions
What is the Annual Investment Allowance for 2026/27?
£1 million a year, for qualifying plant and machinery bought by companies, sole traders and partnerships of individuals.
Can I claim the AIA on a car?
No. Cars are excluded from the AIA. Zero-emission cars can get a 100% first-year allowance instead; other cars get writing down allowances.
Can I claim the AIA on second-hand equipment?
Yes. Unlike full expensing, the AIA covers second-hand assets.
Do sole traders get the Annual Investment Allowance?
Yes, if they use the accruals basis. Sole traders using the cash basis deduct most equipment costs as expenses instead.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance in October 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.