Annual Investment Allowance (AIA): Claim Up to £1 Million in Tax Relief
The Annual Investment Allowance (AIA) lets your company deduct the full cost of qualifying plant and machinery from taxable profits — up to £1 million per year. It's one of the most generous tax reliefs available to UK businesses, and many small companies don't claim it properly.
This guide explains what qualifies, how to claim AIA on your CT600, and the common mistakes that cost companies money.
What is the Annual Investment Allowance?
The AIA gives your company 100% first-year tax relief on qualifying capital expenditure. Instead of spreading the deduction over several years (as with standard writing down allowances), you deduct the entire cost in the year of purchase.
Current AIA limit: £1,000,000 per year (permanently set at this level since April 2023).
For most small and medium companies, this means every qualifying purchase gets full tax relief immediately.
What qualifies for AIA?
Qualifying expenditure ✓
- Office equipment: desks, chairs, computers, monitors, printers
- IT hardware: servers, networking equipment, phones
- Machinery: manufacturing equipment, tools, workshop machinery
- Commercial vehicles: vans, lorries, trucks (not cars — see below)
- Shop/restaurant fit-outs: counters, shelving, commercial kitchen equipment
- Security systems: CCTV, alarms, access control
- Air conditioning and heating systems: in commercial premises
- Certain building fixtures: electrical systems, plumbing, fire protection (integral features)
What does NOT qualify ✗
- Cars — have their own separate capital allowances rules
- Land and buildings — not plant or machinery
- Items given to the business — must be purchased
- Leased items — unless it's a hire purchase (HP) agreement
- Items bought from a connected party — anti-avoidance rules apply
The car exception
Cars are specifically excluded from AIA. Instead, they qualify for:
- 100% first-year allowance: Zero-emission cars (electric/hydrogen)
- 18% writing down allowance: Cars with CO₂ emissions up to 50g/km
- 6% writing down allowance: Cars with CO₂ emissions over 50g/km
If you're buying a van for business use, that DOES qualify for AIA. The distinction between cars and vans matters — HMRC has specific definitions.
How AIA works in practice
Example: £30,000 equipment purchase
Your company buys £30,000 of IT equipment in the accounting period.
Without AIA (using 18% writing down allowance):
- Year 1 deduction: £5,400 (18% of £30,000)
- Year 2 deduction: £4,428 (18% of £24,600)
- Takes ~12 years to fully deduct
With AIA:
- Year 1 deduction: £30,000 (100% immediate)
- Corporation Tax saving at 25%: £7,500 — available immediately
The cash flow benefit is enormous. You get the full tax relief in the year you spend the money, rather than waiting over a decade.
How to claim AIA on your CT600
AIA is claimed through the capital allowances section of your CT600. The key boxes are:
- Box 660: Annual Investment Allowance — enter the total AIA claimed
- Box 680: Total capital allowances claimed (includes AIA plus any other allowances)
- Box 155: Total deductions from trading profits (includes capital allowances)
The process:
- Identify qualifying expenditure in the accounting period
- Separate cars from other assets (cars don't qualify)
- Check the £1m limit (unlikely to be an issue for small companies)
- Enter AIA in box 660 of the CT600
- Include in total capital allowances in box 680
When you file with Taxpipe, the capital allowances wizard walks you through this — you enter what you bought, and Taxpipe determines what qualifies and fills the correct CT600 boxes.
AIA and accounting periods
Short accounting periods
If your accounting period is shorter than 12 months, the AIA limit is proportionally reduced.
For example, a 6-month period gets an AIA limit of £500,000 (£1m × 6/12).
Straddling periods
If you're changing your accounting date and have a period that straddles two financial years with different AIA limits, the calculation gets more complex. This was particularly relevant when the AIA changed from £200,000 to £1,000,000.
Currently, the £1m limit is permanent, so this is less of an issue going forward.
AIA for groups and related companies
There are anti-avoidance rules for groups:
- Associated companies must share a single AIA limit between them
- The £1m allowance is divided by the number of associated companies
- Two associated companies get £500,000 each
- Five associated companies get £200,000 each
"Associated" generally means companies under common control. If you and your spouse each own a company, they may be associated.
Full expensing vs AIA
Since April 2023, the UK also has full expensing — a permanent 100% first-year allowance for qualifying plant and machinery.
Key differences:
| Feature | AIA | Full Expensing |
|---|---|---|
| Annual limit | £1,000,000 | Unlimited |
| Who can claim | All businesses | Companies only (not sole traders) |
| Second-hand assets | ✓ Yes | ✗ No (new assets only) |
| Disposal rules | Standard | Special "balancing charge" rules |
| Available since | Ongoing | April 2023 |
For most small companies spending under £1m per year, AIA is simpler because:
- It covers second-hand purchases
- The disposal rules are more straightforward
- It applies to all business types (not just companies)
If you're spending over £1m on new assets, full expensing picks up where AIA leaves off.
Common AIA mistakes
1. Claiming AIA on cars
Cars are the number one error. Even if the car is used 100% for business, it does NOT qualify for AIA. Use the separate car capital allowances rules instead.
2. Forgetting to claim entirely
Many small companies forget to claim capital allowances at all, especially if they don't use an accountant. Every qualifying purchase — even a £200 laptop — reduces your tax bill.
3. Timing purchases badly
If your accounting period ends on 31 March and you buy equipment on 2 April, the relief is pushed back by almost a full year. Consider timing significant purchases before your year-end.
4. Not separating integral features
Some building work counts as "integral features" (electrical systems, lifts, heating) and qualifies for AIA, while the building itself doesn't. Make sure your builder provides a detailed breakdown.
5. Missing hire purchase claims
If you buy equipment on HP, you can claim AIA on the full purchase price when the asset is first used — not spread over the HP payments.
Practical tips
- Keep detailed records of every capital purchase — date, amount, description, supplier
- Get itemised invoices for any building or fit-out work
- Photograph assets as evidence they exist and are used in the business
- Claim in the correct period — the purchase must fall within the accounting period
- Consider timing — a major purchase just before year-end gives immediate tax relief
Related Articles
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