The Annual Investment Allowance (AIA) is one of the most valuable tax reliefs available to UK businesses — yet many small business owners don’t claim it correctly, or don’t claim it at all. Here’s how it works.
What Is the Annual Investment Allowance?
The AIA allows businesses to deduct the full cost of qualifying plant and machinery from their profits in the year of purchase — up to the current limit of £1 million per year. This is more generous than standard capital allowances, which spread deductions over multiple years.
💡 Key takeaway
The Annual Investment Allowance lets you deduct the full cost of qualifying plant and machinery in the year you buy it — up to £1 million.
What Qualifies for AIA?
Qualifying assets include: machinery and equipment, computers and IT equipment, tools, commercial vehicles, fixtures and fittings in business premises, and integral features of buildings (heating, electrical systems, etc.). Cars do not qualify for AIA — they have separate capital allowance rules.
✅ Qualifies for AIA
- Machinery and equipment
- IT hardware and software
- Commercial vehicles
- Office furniture
- Tools and specialist equipment
❌ Does NOT qualify
- Cars (different capital allowances)
- Land and buildings
- Items for personal use
- Leased assets you don’t own
- Demolition costs
What Doesn’t Qualify?
Cars, assets purchased for leasing, assets bought from a connected party (e.g. yourself or a close relative) and land do not qualify for AIA.
How to Claim AIA
For sole traders: on your self assessment return under capital allowances. For limited companies: on your CT600 corporation tax return. Your bookkeeper records the asset purchase and ensures the AIA claim is correctly included in your tax return.
Super-Deduction and Full Expensing
The 130% super-deduction (available 2021–2023) has been replaced by Full Expensing for limited companies — allowing 100% first-year deduction on most qualifying new plant and machinery. This is in addition to the AIA. Your bookkeeper will ensure you claim the most beneficial allowance for each asset purchase.
Frequently Asked Questions
Is the AIA limit really £1 million?
Yes — the permanent AIA limit has been £1 million since January 2019. Very few small businesses spend more than this on qualifying assets in a single year.
Can I claim AIA on a second-hand asset?
Yes — AIA applies to both new and second-hand qualifying assets, subject to the usual exclusions.
Can my bookkeeper claim AIA for me?
Your bookkeeper records asset purchases throughout the year and ensures AIA is correctly claimed on your tax return as part of their annual service.
