What Is the Annual Investment Allowance (AIA)?
The AIA lets businesses deduct the full cost of qualifying capital expenditure in the year of purchase. Learn what qualifies and how to claim.
Key Takeaways
- AIA allows 100% first-year deduction on qualifying plant and machinery up to £1 million per year
- AIA covers most business equipment — computers, vans, machinery, and commercial fixtures
- Cars have separate capital allowance rules and do not qualify for AIA
- Full expensing (from April 2023) provides an additional 100% deduction for new equipment with no £1 million cap
What the AIA is
The Annual Investment Allowance allows businesses to deduct 100% of the cost of qualifying plant and machinery in the year of purchase, rather than spreading the deduction over several years. It is one of the most valuable capital allowances available. The current AIA limit is £1 million per year — covering the vast majority of SME capital expenditure.
What qualifies for AIA
AIA applies to expenditure on plant and machinery — a broad category including: computers, servers, and IT equipment; office furniture; machinery and manufacturing equipment; tools and instruments; fixtures within commercial buildings (shelving, heating systems, electrical installations); and commercial vehicles such as vans and lorries. Passenger cars do NOT qualify for AIA — they have separate capital allowance rules based on CO2 emissions.
What does not qualify
Items excluded from AIA include: cars (subject to separate rules), assets purchased for leasing to others, buildings and structures (which have their own Structures and Buildings Allowance at 3% per year), and assets purchased purely to maximise AIA claims in the final day of an accounting period — HMRC has anti-avoidance rules for this. Land never qualifies for any capital allowance.
How to claim AIA
AIA is claimed through your annual corporation tax return (CT600). List qualifying capital expenditure and claim the AIA deduction against taxable profits. If capital expenditure exceeds the £1 million AIA limit, the excess is deducted using the standard writing-down allowance — typically 18% per year for standard plant and machinery, 6% for special rate assets. Keep invoices for all items claimed — HMRC may request them during an enquiry.
Full expensing
From April 2023, full expensing was introduced — a 100% first-year allowance for new (not second-hand) qualifying plant and machinery with no £1 million cap. This is particularly valuable for large capital investments exceeding the AIA limit. Full expensing applies only to companies paying corporation tax, whereas AIA is available to all business types. The interaction between AIA and full expensing requires planning for large capital investment decisions.