What is Annual Investment Allowance
Quick answer
Annual Investment Allowance (AIA) lets sole traders and limited companies deduct 100% of qualifying equipment costs in the year of purchase, up to £1 million. This includes computers, machinery, office furniture and commercial vehicles (but not cars). Costs above £1m get writing-down allowances instead.1
How AIA works
Normally, equipment costs are spread over multiple years via capital allowances. AIA lets you claim the full cost immediately (up to £1m), reducing taxable profit in year one.1
Example
You buy £40,000 of office equipment in 2026-27. You claim £40,000 AIA, reducing profit by £40,000. If you're a sole trader in the higher rate band, that saves £16,000 in Income Tax (40% of £40k).
What qualifies
- Computers, laptops, servers
- Office furniture and equipment
- Machinery and tools
- Vans and commercial vehicles
- Fixtures installed in business premises
Does not qualify: cars, items for resale, assets not owned by you.1
Limits
£1,000,000 per tax year. If you buy £1.2m of equipment, £1m gets AIA and £200k goes into writing-down allowances (18% or 6% per year).1
Sources
- HMRC (2026). Capital allowances. gov.uk (accessed 10 July 2026)