Annual Investment Allowance (AIA)
The £1 million allowance, what qualifies, and why hire purchase still gets you the full relief.
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The Annual Investment Allowance lets most businesses deduct the whole cost of qualifying plant and machinery from taxable profits in the year of purchase, rather than writing it down over years. The limit is £1 million a year and has been since January 2019. We are finance brokers, not tax advisers — this is a plain explanation of how AIA interacts with funding, and your accountant confirms your position.
What you can fund
£1m a year
The AIA limit since January 2019.
New and used
Unlike full expensing, both qualify.
Any business type
Sole traders, partnerships, companies.
Hire purchase
Full capital cost, paid monthly.
Commercial vehicles
Vans yes, cars no.
Fixtures & features
Integral features within buildings.
What is the Annual Investment Allowance?
AIA is a capital allowance that gives 100% tax relief up front — the most direct tax relief on machinery available to most businesses. Spend £60,000 on qualifying machinery and, subject to your circumstances and the allowance available to you, you deduct the whole £60,000 from that year’s taxable profits rather than relieving it gradually. It is available to sole traders, partnerships and limited companies alike, which is what distinguishes it from full expensing.
The annual investment allowance limit
£1 million per year. If your accounting period is shorter or longer than twelve months the allowance is adjusted proportionately — a nine-month period gives £750,000. Groups and businesses under common control share a single allowance rather than getting one each.
What qualifies
Most plant and machinery: machines, tools, equipment, commercial vehicles, and integral features and fixtures within a building. It applies to used assets as well as new, which matters because full expensing does not.
What does not qualify
Cars are the big one — they are excluded from AIA entirely and dealt with under separate rules based on emissions. Also excluded are items you owned for another purpose before bringing them into the business, and assets given to the business as a gift. Commercial vehicles such as vans are generally fine; the grey area is double-cab pickups and car-derived vans, where classification is not always what the seller assumes.
AIA and hire purchase — the point most people miss
You do not have to choose between keeping your cash and claiming the allowance. An asset bought on hire purchase qualifies for AIA once you bring it into use, on the capital cost under the contract — not just the payments made so far. The interest is not covered by the allowance; that is relieved separately as a business expense.
In practice that means a business can fund a £60,000 machine on hire purchase, pay monthly across the term, and still claim relief on the full £60,000 in the year it comes into use, subject to its allowance and circumstances. That is a materially different outcome from an operating lease, where you generally deduct the rentals as they fall rather than claiming the allowance on the asset.
Timing matters
The claim is tied to when the asset is brought into use, not when the contract is signed or the last payment is made. If you are near your year end, that timing is worth a conversation with your accountant before you commit — a few weeks can move the relief into a different period entirely.
What to send us
Tell us the asset, your year end, and whether you trade as a company or as a sole trader or partnership. We will arrange the funding and make sure the structure does not cut across the relief you are expecting. For confirmation of what you can actually claim, speak to your accountant — we will not pretend to do their job.
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Prime is an established, profitable business with clean credit. Specialist covers newer businesses and credit that needs explaining — the asset itself carries part of the risk, which is why finance is often available where an unsecured loan is not.
Representative example: on Hire Purchase, borrowing £25,000 over 48 months at a 5.15% flat rate (equivalent to 9.9% APR representative), you would repay around £628 a month; total amount repayable approximately £30,150, of which £5,150 is the cost of finance. This calculator is for illustration only — it is not a quote or an offer of finance, and the rate and repayments you are offered will depend on the asset, term, deposit and your circumstances. CW Asset Finance is a credit broker, not a lender, and will receive a commission from the lender that funds your agreement. All finance is subject to status, affordability and lender approval.
Rates shown are indicative flat rates with the equivalent APR alongside — the two are not the same number. Indicative only and does not constitute a quote or an offer of finance. Subject to status and lender approval.
Frequently asked questions
What is the Annual Investment Allowance?
What is the AIA limit?
Can you claim AIA on hire purchase?
Can I claim AIA on a car?
Does AIA cover second-hand equipment?
When should I claim — does timing matter?
Do you cover my area?
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What is the Annual Investment Allowance?
The Annual Investment Allowance (AIA) lets a UK business deduct 100% of the cost of qualifying plant and machinery from its taxable profits in the year the asset is bought, up to £1 million per year. It has stood at £1 million since 1 January 2019.
It is available to sole traders, partnerships and limited companies alike. Cars are excluded, as are assets given to the business and items owned for another purpose before being brought into the business.
Assets bought on hire purchase qualify: HMRC guidance is that once you start using the item you can claim for all the payments you will make under the contract, though not the interest element.
“AIA” and “AIA allowance” refer to the same thing. It is one of several plant and machinery capital allowances, alongside full expensing, first-year allowances and writing-down allowances — and since 2026 the interaction between them has changed. The rest of this page explains which applies to whom.
Four reliefs, and which one applies to you
Capital allowances changed twice in 2026, and most guidance still describes the position before those changes. There are now four routes to relief on plant and machinery, and which is available depends on how your business is structured, whether the asset is new, and — the part usually missed — how you fund it.
| Relief | Rate | Who can claim | Key restrictions |
|---|---|---|---|
| Annual Investment Allowance | 100% up to £1m a year | Sole traders, partnerships and companies | Cars excluded. £1m is an annual limit across the business or group. |
| Full expensing | 100% main rate 50% special rate | Companies only | New and unused assets only. Assets bought for leasing are excluded. |
| 40% first-year allowance | 40% | Companies and unincorporated businesses | From 1 January 2026. Second-hand assets and cars excluded. Overseas leasing excluded — but assets used for leasing in the UK are eligible. |
| Writing down allowances | 14% main rate 6% special rate | Everyone, on anything not relieved above | Main rate fell from 18% to 14% from April 2026. Relief spread over years rather than taken up front. |
Rates and thresholds as published at August 2026. Capital allowances change with most fiscal events — confirm the current position with your accountant before relying on any figure here.
Writing down allowances — what happens above the £1m
A writing down allowance (WDA, also written writing-down allowance) gives relief on a percentage of an asset’s remaining value each year, rather than the whole cost up front. It is what applies to expenditure that does not qualify for, or exceeds, the allowances above.
From April 2026 the main rate fell from 18% to 14% — 1 April for Corporation Tax, 6 April for Income Tax. The special rate pool remains 6%.
Assets are grouped into pools and written down on a reducing-balance basis, so relief tails off over many years rather than ending cleanly. The main pool covers most plant and machinery. The special rate pool covers longer-life assets, integral features of buildings, thermal insulation and most cars.
The 18% to 14% cut sounds modest and is not. On a reducing balance, a slower rate stretches relief further into the future, and money recovered in eight years is worth less than money recovered in five. In practice it makes the up-front reliefs — AIA, full expensing, the 40% allowance — more valuable relative to letting an asset fall into a pool.
Where cars sit
Cars never qualify for the AIA. Depending on CO₂ emissions they go into the main pool at 14% or the special rate pool at 6%, with first-year allowances available on new zero-emission cars. This is one of the most common points of confusion, because a van is plant and machinery and generally does qualify for the AIA, while a car does not — and the line between the two is not always what people expect.
The 40% first-year allowance — the change most businesses have missed
From 1 January 2026 there is a new permanent 40% first-year allowance on main-rate plant and machinery. Two features make it more significant than the headline rate suggests.
- It is open to unincorporated businesses. Full expensing has always been companies-only, which left sole traders and partnerships relying on the AIA alone. The 40% allowance is available to both.
- Assets used for leasing are eligible. This is the substantial one. Expenditure on plant or machinery for leasing has been excluded from full expensing since 2023 — a restriction the leasing industry has objected to throughout. The 40% allowance reverses it, with a specific carve-out only for overseas leasing.
Second-hand assets and cars are excluded, so it does not replace the AIA for a farm buying a used tractor or a haulier buying a used trailer. Where it matters is new equipment above the £1m AIA ceiling, and new equipment bought by businesses that could not use full expensing.
Set against the writing-down allowance falling from 18% to 14%, the practical effect is that relief taken up front is worth relatively more in 2026 than it was, and relief spread over years is worth relatively less.
How you fund the asset decides what you can claim
This is the part that falls between the accountant and the broker, and it is where businesses most often lose money without realising.
Hire purchase
On hire purchase you are treated as acquiring the asset, so capital allowances are generally available. HMRC guidance is that when you start using the item you can claim for all the payments you will make under the contract — but not the interest element, which is normally deducted as a business expense instead.
The timing point matters: the claim generally arises when the asset is brought into use, not as instalments are paid. A machine delivered and working before your year end can often be relieved in that year even though most of the payments fall in later ones.
Finance lease and operating lease
Under a lease you are not treated as acquiring the asset, so the capital allowances sit with the lessor rather than you. What you deduct instead are the rentals, as a business expense, over the life of the agreement.
That is not automatically worse. Spreading a deduction can suit a business with modest profits, and rentals are deductible without the £1m AIA ceiling applying. But it is a materially different tax outcome from ownership, and it should be a decision rather than an accident.
Outright purchase
Straightforward: you own the asset and claim on the full cost, subject to the usual rules. The question is whether tying up capital is worth the relief, when financing the same asset can produce a similar claim while leaving the cash in the business.
Choosing a funding product purely on the monthly figure, then discovering the tax treatment is not what you assumed. The difference between hire purchase and a lease on the same machine at a similar monthly cost can be a six-figure timing difference in relief on a large purchase. Decide the tax position first, then choose the product that delivers it.
Timing, year ends and the £1m limit
- The £1m AIA is an annual limit, not a per-asset one. It applies across the accounting period, and groups of companies and businesses under common control generally share a single allowance rather than getting one each.
- Short accounting periods reduce it proportionately. A nine-month period gives £750,000, not £1m.
- Straddling a rate change is where errors happen. Where an accounting period spans a date on which rates or rules change, the position is usually apportioned. With the writing-down allowance changing in April 2026, most businesses with a non-March year end are affected.
- Bringing an asset into use is the trigger. Ordering equipment is not enough; it generally needs to be in use. If a claim in the current year matters, delivery and commissioning dates matter as much as the order date.
None of that is exotic, but all of it is easy to get wrong by a few weeks — and a few weeks can move a claim into a different tax year at a different rate.
Where we fit
We are not accountants and we do not give tax advice. What we do is arrange the funding — and because the funding structure determines which reliefs are available, it is worth having the two conversations together rather than in sequence.
In practice that means telling us early if the tax position is driving the purchase: whether you need the asset in use before a year end, whether ownership matters for the claim, and what your accountant has advised. We will structure the finance to fit that, and tell you plainly where a product would not deliver what you are expecting.
Tax treatment depends on your individual circumstances and on legislation that changes. Nothing on this page is tax advice — take advice from your accountant before making a decision. CW Asset Finance is a credit broker, not a lender. All finance is subject to status, affordability and lender approval.