Annual Investment Allowance Calculator

The Annual Investment Allowance (AIA) provides a 100% first-year tax deduction on qualifying expenditure on plant and machinery, up to the current limit of £1,000,000 per year. The full cost of qualifying assets is deducted from your taxable profits in the year of purchase, rather than being spread over multiple years through writing down allowances. The limit has been permanent at £1,000,000 since April 2023, and sole traders, partnerships and limited companies are all eligible. The AIA applies per business, not per asset, so a single £1M cap covers all qualifying purchases combined.

Qualifying expenditure includes most tangible assets used in the business: factory equipment, machinery, tools, computers, software, office furniture, fixtures, vans and lorries. Second-hand assets are eligible. Cars are excluded from AIA, as are assets given to the business or purchased for non-business use, buildings (which fall under the Structures and Buildings Allowance at 3% a year), shares and intangibles. The one car exception is new zero-emission cars, which get a 100% First Year Allowance if bought by 31 March 2027 (Corporation Tax) or 5 April 2027 (Income Tax). Spend above the £1M limit can still get full expensing or a first-year allowance if the assets are new and qualify. Anything else goes into the main or special rate writing down allowance pool at 14% or 6% respectively, and cars go straight into those pools as well.

For accounting periods that straddle two AIA limit periods or that are shorter or longer than 12 months, the allowance is proportionally adjusted. A 6-month accounting period would carry a £500,000 AIA limit, and if an asset has mixed business and private use the claim is scaled back in proportion. The deduction directly reduces your Corporation Tax or Income Tax bill by lowering the profit figure on which tax is computed. An £80k machinery purchase becomes an £80k immediate deduction, and for a company paying 25% Corporation Tax that saves £20k of tax straight away instead of drip-feeding the relief over years.

Full Expensing is a separate relief that sits alongside AIA. It is available to companies only, not sole traders or partnerships, gives a 100% first-year deduction with no £1M cap, and has applied since 1 April 2023, made permanent at the Autumn Statement 2023. Main rate assets get 100% expensing, while special rate assets such as long-life items and integral features get 50% in the first year followed by 6% reducing balance thereafter. Cars are still excluded. In practice, AIA does the work for partnerships and sole traders, and Full Expensing for limited companies. Since 1 January 2026 sole traders and partnerships also get a 40% first-year allowance on new main-rate plant, which helps once their spend passes the AIA limit.

Several mistakes recur. Claiming AIA on a car is disallowed and the asset must instead go through capital allowances at 14% or 6%. Forgetting to claim is surprisingly common: the allowance has to be elected on the Self Assessment return or CT600 each year. Integral features such as lighting, heating and lifts belong in the special rate pool at 6%, not the 14% main pool. Selling an asset within a few years can trigger a balancing charge that claws back some of the AIA.

Timing matters for planning. Buying near the year end can pull a large deduction into a year where profit is approaching a threshold. Take a company with £200k profit that spends £80k on machinery: its tax bill falls to £28,050 on £120k against £49,250 without the purchase, a £21,200 saving, because both figures sit in the marginal relief band where each extra pound is taxed at 26.5%. Hire purchase agreements qualify for AIA on the full price at the start, even while instalments are still being paid, whereas an operating lease is a tax-deductible expense rather than AIA. Keep invoices, an asset register and depreciation records for 5 years. This calculator takes your qualifying spend, business type and asset type, checks the spend against the £1,000,000 cap and shows the first-year deduction and the tax saved at your rate, assuming your profit is large enough to absorb it.