What is an annual investment allowance?

The Annual Investment Allowance (AIA) is tax relief for British businesses that deal with business equipment. It is a type of capital allowance.

Any claim made under AIA is known as a Capital Allowance, and the items you claim are mostly tangible assets.

While calculating taxable profits, you can deduct 100% of the cost of equipment that qualifies for the AIA. Tools and machines are examples of equipment usually eligible for the AIA.

Annual Investment Allowance example

● On 01 March 2025, you purchased a new item of plant and machinery.
● Its cost is £150,000.
● The taxable profit is £400,000.
● As plant and machinery is eligible for the Annual Investment Allowance (i.e., you can deduct the cost from taxable profits)
● You will pay tax on £250,000 (£400,000-£150,00).

Things to remember about claiming

Consider the following things before filing for AIA:

● The current annual investment allowance limit is £1 million.
● AIA limits do not apply to every piece of equipment.
● Car is one of the items that does not qualify for AIA; nevertheless, you can claim writing down allowances in its place, usually over several years rather than all at once.

How do you claim Capital Allowances under the AIA scheme?

Claims are submitted through a tax return.