What is Annual Investment Allowance (AIA)? UK Definition 2026/27
Quick Answer
Tax relief allowing businesses to deduct 100% of qualifying equipment costs up to £1 million.
Definition of Annual Investment Allowance (AIA)
The Annual Investment Allowance (AIA) lets businesses deduct the full cost of qualifying plant and machinery from their profits in the year of purchase, up to £1,000,000 per year. This provides immediate tax relief rather than spreading deductions over several years through writing down allowances.
Qualifying items include equipment, machinery, office furniture, computers, vans and commercial vehicles, tools, and some fixtures in buildings. Cars do not qualify for AIA (they have separate capital allowance rules).
AIA applies to sole traders, partnerships, and limited companies. If you have associated companies, the £1m limit is shared between them. The allowance has been permanently set at £1m since April 2023, providing certainty for business investment planning.
Annual Investment Allowance (AIA) — Key Facts for 2026/27
| AIA Limit 2026/27 | £1,000,000 |
| Tax Relief Rate | 100% in year of purchase |
| Cars Eligible | No (separate rules) |
| Permanent Limit | Since April 2023 |
How Annual Investment Allowance (AIA) Works — Example
- 1Company buys manufacturing equipment: £200,000
- 2AIA claimed: 100% = £200,000
- 3Corporation Tax rate: 25%
- 4Tax saved: £200,000 × 25% = £50,000
- 5Effective cost of equipment: £200,000 - £50,000 = £150,000
How Annual Investment Allowance (AIA) Affects Your Tax
AIA significantly reduces the effective cost of business investment. For a company paying 25% Corporation Tax, every £1,000 of qualifying expenditure costs only £750 after tax relief. This encourages businesses to invest in equipment and productivity improvements. Timing purchases near year-end can be beneficial if you have unused AIA.
Official HMRC Guidance on Annual Investment Allowance (AIA)
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Annual Investment AllowanceFrequently Asked Questions about Annual Investment Allowance (AIA)
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.