What is the Annual Investment Allowance and how do I claim it?

• Corporation Tax Act 2009, section 53: no deduction for items of a capital nature in calculating trading profits.

• Capital Allowances Act 2001, section 11: plant and machinery allowances need a qualifying activity, capital expenditure on plant or machinery wholly or partly for that activity, and ownership as a result. HMRC's Capital Allowances Manual (CA21010): computers and similar electronic devices are machinery.

• Section 38A: expenditure is AIA qualifying expenditure if it is incurred by a qualifying person (which includes a company) on or after the relevant date (1 April 2008 for Corporation Tax), and is not excluded by section 38B.

• Section 51A(3) and (4): if the AIA qualifying expenditure in a chargeable period is less than or equal to the maximum allowance, the AIA covers all of it; if more, it covers the expenditure up to the maximum. Section 51A(7): a claim may be for all or only some of it.

• CA23084: the AIA is available on virtually all plant and machinery qualifying expenditure, including long-life assets, integral features and other special rate expenditure. The taxpayer may allocate it against any type of expenditure in any way they choose, and HMRC expects it will commonly be allocated against the expenditure that would otherwise receive the lowest rate of allowance.

SourcesThe law·HMRC

• Section 51A(5) and (6): the maximum allowance is £1,000,000. If the chargeable period is more or less than a year, the maximum allowance is proportionately increased or reduced. This is the text in force on 16 September 2026.

• GOV.UK: if your accounting period is 9 months, the AIA will be 9/12 x £1,000,000 = £750,000. Claim first-year allowances or writing down allowances on any amount above the AIA; if a single item takes you above the AIA amount, you can split its value between the types of allowance.

• GOV.UK's page on 100% first-year allowances: you cannot claim more than one allowance against the same expenditure.

• A company's Corporation Tax accounting period cannot be longer than 12 months. If a company makes up accounts for longer, the first twelve months will normally be an accounting period (CTM01510), and GOV.UK says 2 returns are needed.

SourcesThe law·HMRC·GOV.UK

• CA23085: the AIA may only be claimed in the chargeable period in which the qualifying expenditure is incurred (or treated as incurred), so any unused balance of an AIA cannot be carried forward for use in a later chargeable period. Businesses may choose whether or not to claim the AIA, or to claim part only of it. It is acceptable to claim the AIA on part of an asset's cost and pool the rest for writing down allowances.

• GOV.UK: a limited company claims capital allowances on its Corporation Tax return, with a separate capital allowances calculation. You must claim in the accounting period you bought the item if you want the AIA. If you do not want to claim the full value as AIA or a first-year allowance, you can claim part of it using writing down allowances, at any time as long as you still own the item. The date you bought it is when you signed the contract, if payment is due within less than 4 months, or when payment is due, if it is due more than 4 months later. GOV.UK does not say which date applies where payment is due exactly 4 months later, so take care with a purchase near your year end.

SourcesHMRC·GOV.UK

• Capital Allowances Act 2001, section 56 (as amended by Finance Act 2026): 14% for chargeable periods beginning on or after 1 April 2026 for Corporation Tax; 18% for periods beginning on or after 1 April 2012 and before 1 April 2026 (CA23220). The allowance is increased or reduced in proportion for a chargeable period of more or less than a year, and reduced if the qualifying activity was carried on for only part of the period.

• Finance Act 2026, section 28: for a chargeable period beginning before and ending on or after 1 April 2026, the rate is X = (18 x BRD/CP) + (14 x ARD/CP). BRD and ARD are the days in the period before, and on and after, 1 April 2026. CP is the days in the period. X is rounded up to two decimal places.

• The special rate is 6% for chargeable periods beginning on or after 1 April 2019 (CA23220). GOV.UK lists the items that only get 6%: integral features, long-life items, solar panels, thermal insulation added to a building, and cars above an emissions threshold.

• Section 56A: where the main pool or special rate pool balance is £1,000 or less, the writing down allowance is the whole balance. The £1,000 is scaled for a period of more or less than a year; GOV.UK gives 9/12 x £1,000 = £750 for 9 months.

SourcesThe law·HMRC·GOV.UK

• HMRC's Business Income Manual (BIM37007): you add back depreciation when you compute the taxable profits.

• CA20006: depreciation of fixed assets charged in the accounts is not allowed as a deduction in computing taxable profits; capital allowances may be given instead. Pooling keeps a running total of the unrelieved expenditure. CA10020: capital allowances take the place of depreciation.

SourcesHMRC

Capital Allowances Act 2001, section 205: if plant or machinery is bought partly for the qualifying activity and partly for other purposes, any annual investment allowance or first-year allowance must be reduced to an amount which is "just and reasonable" having regard to the relevant circumstances. These include, in particular, the extent to which the item is likely to be used for other purposes.

HMRC's Capital Allowances Manual (CA27100) accepts that an asset provided for a director's private use, as part of a pay package taxed on the director, is bought wholly and exclusively for the business. If the asset is machinery, the claim should be accepted. The same paragraph says a benefit charge on the director does not necessarily stop HMRC refusing allowances, and a blatant mismatch between the asset and the business's needs may let HMRC restrict them.

SourcesThe law·HMRC

• Section 38B: expenditure is not AIA qualifying expenditure if it is incurred in the chargeable period in which the qualifying activity is permanently discontinued (general exclusion 1), or on the provision of a car as defined by section 268A (general exclusion 2).

• Section 268A: a car is a mechanically propelled road vehicle other than a motor cycle, a vehicle of a construction primarily suited for carrying goods or burden of any description, or a vehicle of a type not commonly used as a private vehicle and unsuitable for such use.

• GOV.UK: because they do not count as cars, you can claim the AIA on motorcycles (apart from those bought before 6 April 2009), lorries, vans and trucks.

• CA23084 lists five general exclusions, including assets received as a gift and assets brought into use for the qualifying activity after being acquired for other purposes.

SourcesThe law·HMRC·GOV.UK