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).

£25,000 Annual Investment Allowance UK 2026/27

A UK sole trader spending £25,000 on qualifying plant and machinery in 2026/27 claims £25,000 of year-one relief (£25,000 AIA + £0 WDA), saving roughly £10,500 in Income Tax and Class 4 NIC at a 42% marginal rate. A limited company spending the same on new and unused main-pool P&M claims £25,000 via uncapped full expensing. Verified against gov.uk AIA guidance.

Sole trader, AIA

£25,000

Tax saved £10,500 at 42.0%

Company, new P&M (full expensing)

£25,000

CT saved £6,250 at 25.0%

AIA cap headroom

£975,000

Headroom for further AIA in this period

Decision tree for £25,000 of capex

Is it a limited company buying new and unused main-pool plant and machinery? Claim 100% full expensing on the entire £25,000. Year-one relief = £25,000, no AIA used, no cap.
Otherwise (sole trader, partnership, second-hand kit, or special-rate items), claim Annual Investment Allowance on up to £1,000,000 at 100% in year one.
Spillover above the £1m cap goes to the main pool at 18% WDA (most P&M) or the special-rate pool at 6% WDA (integral features, long-life, thermal insulation).
Connected companies share a single £1,000,000 AIA and allocate it among themselves. A short accounting period gets a proportionate cap.
Cars are excluded from AIA. Use the capital-allowances calculator for car CO2-based rules.

All 6 scenarios at £25,000

Year-one relief, AIA used, WDA applied to spillover, and indicative tax saving at the relevant marginal rate. Sole trader and partnership assume £80,000 of taxable profit (42% marginal); company assumes £300,000 of taxable profit (25% Main Rate). Use the main calculator to vary the profit input.

Business type	Spillover pool	AIA	FYA	WDA yr1	Year-1 relief	Tax saved
Sole trader	Main pool (18% WDA)	£25,000	£0	£0	£25,000	£10,500
Sole trader	Special-rate (6% WDA)	£25,000	£0	£0	£25,000	£10,500
Partnership	Main pool (18% WDA)	£25,000	£0	£0	£25,000	£10,500
Partnership	Special-rate (6% WDA)	£25,000	£0	£0	£25,000	£10,500
Limited company	Main pool (18% WDA)	£0	£25,000	£0	£25,000	£6,250
Limited company	Special-rate (6% WDA)	£25,000	£0	£0	£25,000	£6,250

Worked example: sole trader buying £25,000 of plant and machinery

A UK sole trader purchases £25,000 of qualifying main-pool plant and machinery in their 2026/27 basis period (e.g. a CNC machine, commercial fit-out equipment, IT hardware, or a fleet of vans). Under the Annual Investment Allowance regime (permanent £1m cap since 1 April 2023):

AIA claimed: £25,000
AIA cap remaining: £975,000
Year-1 WDA on spillover: £0
Total year-1 deduction: £25,000
Residual pool carried forward: £0
Indicative tax saving at a 42% marginal rate (40% IT + 2% Class 4 NIC above the upper profits limit): £10,500. Cross-check the exact figure against /self-employed-calculator which models the precise Income Tax and Class 4 NIC bands at your profit level.

A limited company buying the same £25,000 of new and unused main-pool P&M instead claims uncapped 100% full expensing: £25,000 of year-1 relief with no residual pool. That saves £6,250 of Corporation Tax at the 25% Main Rate (for a company with taxable profits above £250,000).

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Related calculators

Annual Investment Allowance calculator - interactive version: change the spend, business type, profit, and pool.
Capital Allowances calculator - the full stack including FYA on zero-emission cars, 50% FYA on company special-rate, and CO2-based car WDA.
Corporation Tax calculator - precise CT saving against actual taxable profit (Small Profits Rate, Marginal Relief, or Main Rate).
Self-employed tax calculator - precise sole-trader marginal rate (Income Tax + Class 2 + Class 4 NIC).

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).