What is the Annual Investment Allowance (AIA) for 2026/27?

The AIA gives a 100% first-year deduction from taxable profits on qualifying plant and machinery, up to £1,000,000 per accounting period. The cap has been permanent at £1m since 1 April 2023, confirmed in Autumn Statement 2023 as a permanent measure. Both companies and unincorporated businesses (sole traders and partnerships) get the same £1m allowance, although companies typically use full expensing on new main-pool P&M instead.

What expenditure qualifies for AIA?

Most plant and machinery used in the trade qualifies - machinery, equipment, vans, lorries, IT hardware, office furniture, and integral features (heating, lighting, ventilation, lifts). The asset can be new or second-hand. Excluded items: cars (which follow separate CO2-based rules), land and buildings (Structures and Buildings Allowance at 3% straight-line covers buildings), assets given to the business, and items transferred from personal use into the business.

Can companies claim both AIA and full expensing?

Companies have a choice on new and unused main-pool plant and machinery: claim full expensing (100% First-Year Allowance, no cap) or claim AIA. Full expensing is almost always preferred because it has no £1m cap and no clawback if the asset is sold within a normal economic life. AIA still matters for companies buying second-hand assets (where FE does not apply) and for special-rate items where the 50% FYA + AIA combination can be more favourable. Sole traders and partnerships have AIA only.

What happens if I spend more than £1,000,000?

Spend above the £1m AIA cap is added to the main pool (18% Writing Down Allowance) or the special-rate pool (6% WDA), depending on the asset class. A sole trader buying £1.5m of new machinery claims £1m of AIA plus 18% WDA on the £500,000 excess (a further £90,000 of year-one relief, total £1.09m). The £410,000 residual rolls into the main pool and is written down at 18% reducing balance in subsequent years. Companies hit this only on second-hand spend; new main-pool spend is covered by uncapped full expensing.

How do AIA rules apply to cars?

Cars are excluded from AIA entirely. They follow CO2-based first-year and pool rules. New + unused zero-emission cars (0 g/km) get a 100% First-Year Allowance, available to both companies and sole traders. Cars 1-50 g/km go to the main pool at 18% WDA. Cars above 50 g/km go to the special-rate pool at 6% WDA. Second-hand cars never qualify for FYA. If you need to model car-only capex, use the /capital-allowances-calculator which handles every asset class.

When is the AIA claim made and how does it interact with the accounting period?

AIA is claimed in the accounting period in which the asset is brought into use, on the CT600 (company) or self-assessment return (sole trader / partnership). The £1m cap is pro-rated for accounting periods shorter than 12 months (e.g. a 6-month period gets £500,000 of AIA). Connected companies and groups of companies share a single £1m allowance and decide how to allocate it among themselves. Late claims can be amended within the normal time limits (12 months after the filing deadline for a company; 12 months after 31 January for a sole trader).

UK Annual Investment Allowance Calculator 2026/27

The Annual Investment Allowance (AIA) gives a 100% first-year deduction from taxable profits on qualifying plant and machinery, up to £1,000,000 per accounting period - permanent since 1 April 2023. Companies buying new main-pool P&M can use uncapped full expensing instead. Verified against gov.uk AIA guidance and HMRC manual CA23080.

Worked scenarios

£50k P&M, sole trader (full AIA)

£50,000

AIA £50,000 - FYA £0 - WDA £0

Tax saved £21,000 at 42.0%
£500k P&M, sole trader (AIA, within cap)

£500,000

AIA £500,000 - FYA £0 - WDA £0

Tax saved £235,000 at 47.0%
£1.5m P&M, sole trader (AIA £1m + 18% WDA)

£1,090,000

AIA £1,000,000 - FYA £0 - WDA £90,000

Tax saved £512,300 at 47.0%
£1.5m new P&M, company (full expensing)

£1,500,000

AIA £0 - FYA £1,500,000 - WDA £0

Tax saved £375,000 at 25.0%
£200k P&M, partnership (AIA)

£200,000

AIA £200,000 - FYA £0 - WDA £0

Tax saved £94,000 at 47.0%
£1.5m special-rate, partnership (AIA + 6% WDA)

£1,030,000

AIA £1,000,000 - FYA £0 - WDA £30,000

Tax saved £484,100 at 47.0%

How the Annual Investment Allowance works

The AIA is the most generous capital allowance available to most UK businesses. It lets you deduct 100% of qualifying capital expenditure from your taxable profit in the year the asset is brought into use, rather than spreading the cost over multiple years through depreciation or Writing Down Allowances. The effect: a £1 spend on qualifying plant gives you up to £0.47 of cash-tax saved in year one (a 47% additional-rate sole trader), or up to £0.265 (a company in the marginal-relief band).

The cap was £200,000 historically, raised to £1,000,000 as a temporary measure from 2019, and made permanent at £1m by the Spring Budget 2023. Autumn Statement 2023 confirmed permanence and added "full expensing" for companies on top.

What qualifies for AIA

Machinery - CNC machines, lathes, presses, manufacturing kit.
Equipment - test rigs, lab apparatus, retail point-of-sale, restaurant fit-out.
Vans, lorries, and HGVs - commercial vehicles qualify (cars are excluded; see below).
IT hardware - servers, laptops, monitors, networking, printers.
Office furniture - desks, chairs, partitions, meeting-room kit.
Integral features - heating, lighting, electrical, air-conditioning, ventilation, lifts, escalators, water systems (these are special-rate pool items at 6% WDA, but are AIA-eligible).
Long-life assets - items with a 25-year+ expected economic life.
Thermal insulation added to an existing building.

What does not qualify for AIA

Cars - all cars are outside AIA. Follow the CO2-based rules: new + unused zero-emission cars get 100% FYA, 1-50 g/km go to the main pool at 18% WDA, over 50 g/km to the special-rate pool at 6% WDA.
Land and buildings - the structure of the building is covered by Structures and Buildings Allowance (3% straight-line over 33⅓ years), not AIA. Integral features inside a building DO qualify for AIA / WDA separately.
Assets gifted to the business - no qualifying expenditure where there was no cost.
Personal-use items brought into the business - the deemed market value is not qualifying expenditure for AIA purposes.
Items intended for resale - that's trading stock, not capital expenditure.

AIA vs full expensing for companies

A limited company subject to Corporation Tax has two parallel 100% first-year deductions for plant and machinery:

AIA - 100% relief up to £1m, available on new OR second-hand main-pool and special-rate items.
Full expensing - 100% relief with NO cap, but ONLY on new and unused main-pool plant and machinery (so excludes integral features and second-hand kit).

Companies should typically claim full expensing first on eligible new main-pool P&M (no cap, no ceiling) and reserve AIA for anything that doesn't qualify for FE - second-hand assets, integral features, long-life items, thermal insulation. Sole traders and partnerships don't get full expensing at all and must use AIA for everything up to £1m.

Spillover above the £1m cap

Spend above the £1m AIA cap (and above any full-expensing claim) goes into the relevant pool and is written down on a reducing-balance basis:

Main pool - 18% Writing Down Allowance per year. Most plant and machinery.
Special-rate pool - 6% WDA per year. Long-life assets, integral features, thermal insulation, high-emission cars.

Example: a sole trader spending £1.5m on machinery in 2026/27 claims £1m of AIA plus 18% of £500,000 = £90,000 of year-1 WDA. Total year-1 deduction = £1,090,000. The remaining £410,000 rolls into the main pool and earns 18% WDA in year 2 = £73,800, then 18% of £336,200 in year 3, and so on until written down.

Connected companies and short accounting periods

Two technical points that catch businesses out:

Connected companies / groups share a single £1,000,000 AIA between them and decide at the start of the accounting period how to split it. Connected sole traders (e.g. a husband-and-wife partnership plus a personal sole-trade) also share one AIA where the businesses are run together or share premises - HMRC manual CA23083 lists the connection tests.
Accounting periods shorter than 12 months get a proportionate AIA. A 6-month period gets £500,000; a 9-month period £750,000. A long accounting period (over 12 months) cannot increase the AIA above £1m - it's an annual cap regardless.

When to claim

AIA is claimed on the tax return for the accounting period in which the asset is brought into use:

Company - on the CT600 Corporation Tax return, with capital-allowance computations in the iXBRL tagged accounts.
Sole trader / partnership - on the Self-Assessment SA103 (self-employment) or SA800 (partnership) pages, in the capital-allowances section.

The asset must be brought into use in the period - committed-to under hire-purchase counts, but a deposit on something delivered after the period end does not. Late claims can be made by amending the return within the normal time limit (12 months after the filing deadline).

Marginal-rate tax saving (sole trader vs company)

A £100,000 AIA claim gives different cash-tax outcomes depending on the entity and profit level:

Sole trader at basic rate (20% IT + 6% Class 4 NI) - saves £26,000.
Sole trader at higher rate (40% IT + 2% Class 4 NI) - saves £42,000.
Sole trader at additional rate (45% IT + 2% Class 4 NI) - saves £47,000.
Company at Small Profits Rate (19%, profits ≤ £50k) - saves £19,000.
Company in Marginal Relief (26.5% effective, £50k - £250k) - saves £26,500.
Company at Main Rate (25%, profits ≥ £250k) - saves £25,000.

The counter-intuitive result: a higher-rate sole trader saves more tax per £1 of AIA than a Main Rate company, because the sole trader's marginal rate (42-47%) is higher than the company's (25-26.5%). This sometimes drives the choice of trading vehicle for asset-heavy businesses, although Corporation Tax savings are deferred (paid on the eventual dividend), not eliminated.

Related tools

/capital-allowances-calculator - the full capital-allowances stack (AIA + FYA + WDA across every asset type, including cars).
/corporation-tax-calculator - cross-check the precise CT saving against your taxable profit (Small Profits Rate, Marginal Relief, or Main Rate).
/self-employed-tax-calculator - cross-check the sole-trader marginal rate (Income Tax + Class 2 + Class 4 NIC).

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Frequently asked questions

What is the Annual Investment Allowance (AIA) for 2026/27?: The AIA gives a 100% first-year deduction from taxable profits on qualifying plant and machinery, up to £1,000,000 per accounting period. The cap has been permanent at £1m since 1 April 2023, confirmed in Autumn Statement 2023 as a permanent measure. Both companies and unincorporated businesses (sole traders and partnerships) get the same £1m allowance, although companies typically use full expensing on new main-pool P&M instead.
What expenditure qualifies for AIA?: Most plant and machinery used in the trade qualifies - machinery, equipment, vans, lorries, IT hardware, office furniture, and integral features (heating, lighting, ventilation, lifts). The asset can be new or second-hand. Excluded items: cars (which follow separate CO2-based rules), land and buildings (Structures and Buildings Allowance at 3% straight-line covers buildings), assets given to the business, and items transferred from personal use into the business.
Can companies claim both AIA and full expensing?: Companies have a choice on new and unused main-pool plant and machinery: claim full expensing (100% First-Year Allowance, no cap) or claim AIA. Full expensing is almost always preferred because it has no £1m cap and no clawback if the asset is sold within a normal economic life. AIA still matters for companies buying second-hand assets (where FE does not apply) and for special-rate items where the 50% FYA + AIA combination can be more favourable. Sole traders and partnerships have AIA only.
What happens if I spend more than £1,000,000?: Spend above the £1m AIA cap is added to the main pool (18% Writing Down Allowance) or the special-rate pool (6% WDA), depending on the asset class. A sole trader buying £1.5m of new machinery claims £1m of AIA plus 18% WDA on the £500,000 excess (a further £90,000 of year-one relief, total £1.09m). The £410,000 residual rolls into the main pool and is written down at 18% reducing balance in subsequent years. Companies hit this only on second-hand spend; new main-pool spend is covered by uncapped full expensing.
How do AIA rules apply to cars?: Cars are excluded from AIA entirely. They follow CO2-based first-year and pool rules. New + unused zero-emission cars (0 g/km) get a 100% First-Year Allowance, available to both companies and sole traders. Cars 1-50 g/km go to the main pool at 18% WDA. Cars above 50 g/km go to the special-rate pool at 6% WDA. Second-hand cars never qualify for FYA. If you need to model car-only capex, use the /capital-allowances-calculator which handles every asset class.
When is the AIA claim made and how does it interact with the accounting period?: AIA is claimed in the accounting period in which the asset is brought into use, on the CT600 (company) or self-assessment return (sole trader / partnership). The £1m cap is pro-rated for accounting periods shorter than 12 months (e.g. a 6-month period gets £500,000 of AIA). Connected companies and groups of companies share a single £1m allowance and decide how to allocate it among themselves. Late claims can be amended within the normal time limits (12 months after the filing deadline for a company; 12 months after 31 January for a sole trader).

Other UK tax calculators that pair with the AIA.