Annual Investment Allowance Calculator UK

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How to calculate your Annual Investment Allowance claim for 2026/27. Learn about the £1 million limit, qualifying plant and machinery, tax savings, and how to claim through HMRC.

Introduction

If your business is planning to buy equipment, machinery, or other qualifying assets, the Annual Investment Allowance (AIA) could save you thousands of pounds in tax. For the 2026/27 tax year, the AIA limit remains at £1 million, meaning most UK businesses can deduct the full cost of qualifying purchases from their taxable profits in the year they buy them.

This guide explains everything you need to know about the Annual Investment Allowance, including who can claim it, what qualifies, how the calculation works, and how to use our calculator to maximise your tax relief.

What is the Annual Investment Allowance?

The Annual Investment Allowance (AIA) is a UK tax relief that allows businesses to deduct the full cost of qualifying plant and machinery from their taxable profits in the year of purchase. It is effectively a 100% first-year allowance, capped at a maximum annual limit.

The AIA was introduced to encourage business investment and simplify the tax system, particularly for smaller businesses that invest less than the maximum allowance. For the 2026/27 tax year, the AIA limit remains at £1 million, a level that has been permanent since April 2023.

Key features of AIA

• 100% tax relief on qualifying expenditure up to the annual limit
• Available to all businesses regardless of size or legal structure
• Claimed in the year of purchase – not spread over several years
• Must be claimed – it is not automatic

Who Should Use This Calculator?

This calculator is designed for:

• Limited companies – to calculate Corporation Tax savings on qualifying purchases
• Sole traders – to work out Income Tax relief on business equipment
• Partnerships – to determine AIA claims for the partnership
• Self-employed workers – investing in tools, machinery or IT equipment
• Contractors – purchasing equipment for their business
• Accountants and payroll professionals – preparing tax returns for clients
• Landlords – claiming on qualifying plant and machinery in rental properties

If you are a sole trader or self-employed, our Self Employed Tax guide covers the broader tax picture, and our Self Assessment complete guide explains how to claim capital allowances on your tax return.

How the Calculator Works

Our Annual Investment Allowance Calculator works by:

1. Taking your total qualifying capital expenditure – the total amount spent on eligible plant and machinery in the accounting period
2. Applying the £1 million AIA limit – the calculator deducts the full cost up to the annual limit
3. Calculating the tax saving – it applies the relevant Corporation Tax or Income Tax rate to show your actual tax reduction
4. Identifying any excess expenditure – amounts over the £1 million limit are shown as eligible for Writing Down Allowances (WDA) in future years

The calculator uses the latest 2026/27 tax rates and HMRC rules to give you an accurate estimate of your tax relief.

HMRC Rules for Annual Investment Allowance

The AIA Limit

For the 2026/27 tax year, the AIA limit is £1 million per business. This limit applies to:

• Companies (for Corporation Tax purposes)
• Sole traders and partnerships (for Income Tax purposes)

If your accounting period is shorter or longer than 12 months, the AIA limit must be proportionately adjusted. For example, if your accounting period is 6 months, the maximum AIA you can claim is £500,000 (6 ÷ 12 × £1 million).

What Qualifies for AIA?

AIA covers most types of plant and machinery used in a business.

Qualifies for AIA

Does NOT qualify for AIA

Machinery and tools

Cars (use WDA instead)

Computers, servers and IT equipment

Buildings, land and structures

Vans and commercial vehicles

Items you owned before business use

Office furniture and desks

Assets used for leasing (overseas)

Integral building features (lifts, heating, air conditioning)

Important: Cars never qualify for AIA. They are subject to separate capital allowances based on CO₂ emissions.

Who Can Claim AIA?

AIA is available to most UK businesses, including limited companies, sole traders and partnerships. However, where two or more businesses are under common control, the AIA may need to be shared between them. Partnerships with a corporate partner are not entitled to the AIA at all.

Tax Rates and Thresholds for 2026/27

Corporation Tax Rates (2026/27)

Profits

Rate

Up to £50,000

19% (Small Profits Rate)

£50,000 to £250,000

26.5% (Marginal Relief)

Over £250,000

25% (Main Rate)

Income Tax Rates for Sole Traders (2026/27)

Band

Income Range

Rate

Personal Allowance

Up to £12,570

0%

Basic Rate

£12,571 to £50,270

20%

Higher Rate

£50,271 to £125,140

40%

Additional Rate

Over £125,140

45%

Writing Down Allowance (WDA) Changes for 2026/27

Pool

2025/26 Rate

2026/27 Rate

Main Rate Pool

18%

14%

Special Rate Pool

6%

6%

The reduction in the main rate WDA from 18% to 14% takes effect from 1 April 2026 for companies and 6 April 2026 for unincorporated businesses.

Formula Used in the Calculator

Step 1: Identify total qualifying capital expenditure (QCE) in the accounting period.

Step 2: Apply the AIA limit (normally £1 million for a 12-month period).

Step 3: Calculate AIA claim:

• If QCE ≤ AIA limit: Full amount qualifies for 100% relief
• If QCE > AIA limit: First £1 million qualifies for 100% relief; excess goes to the main pool for WDA

Step 4: Calculate tax saving = AIA claim × applicable tax rate

Step 5: Calculate WDA on excess expenditure = Excess × 14% (main rate) or 6% (special rate)

Calculation Explained with Examples

Example 1: Limited Company Purchasing Equipment

Scenario: A limited company with profits of £100,000 purchases new machinery costing £75,000.

Calculation:

• Qualifying expenditure: £75,000
• AIA claim: £75,000 (full amount)
• Corporation Tax rate: 19%
• Tax saving: £75,000 × 19% = £14,250

Example 2: Sole Trader Buying Equipment

Scenario: A sole trader with profits of £60,000 purchases tools and IT equipment costing £30,000.

Calculation:

• Qualifying expenditure: £30,000
• AIA claim: £30,000 (full amount)
• Income Tax rate: 20%
• Tax saving: £30,000 × 20% = £6,000

Example 3: Business Exceeding the AIA Limit

Scenario: A company purchases machinery costing £1,200,000.

Calculation:

• Qualifying expenditure: £1,200,000
• AIA claim: £1,000,000
• Excess expenditure: £200,000 (goes to main pool)
• Corporation Tax rate: 25%
• Tax saving on AIA: £1,000,000 × 25% = £250,000
• WDA on excess (14%): £200,000 × 14% = £28,000 relief in future years

Common Mistakes to Avoid

1. Claiming AIA on cars – Cars do not qualify for AIA. Use writing down allowances instead.
2. Forgetting to claim – AIA is not automatic; you must claim it on your tax return.
3. Not adjusting for short accounting periods – If your accounting period is less than 12 months, the AIA limit must be proportionately reduced.
4. Claiming on ineligible assets – Buildings, land and structures do not qualify for AIA.
5. Ignoring related business rules – If you control multiple businesses, you may need to share the AIA limit.
6. Overlooking the new FYA – A new 40% First Year Allowance is available from 1 January 2026 for expenditure not covered by AIA.

Frequently Misunderstood Rules

Cars and AIA

Cars never qualify for AIA, regardless of whether they are new or used. Instead, cars are allocated to the main or special rate pool based on their CO₂ emissions. Zero-emission cars may qualify for a 100% First Year Allowance.

Second-Hand Assets

AIA can be claimed on second-hand plant and machinery, provided the asset is used in the business. However, the new 40% FYA introduced from 1 January 2026 does not apply to second-hand assets.

Related Businesses

If you own multiple businesses under common control, the AIA limit may need to be shared. HMRC applies two tests: the 'same premises' test and the 'similar activities' test.

Advantages and Limitations

Advantages

Limitations

Immediate 100% tax relief

Capped at £1 million

Improves cash flow

Cars are excluded

Simplifies tax calculations

Must be claimed, not automatic

Available to all businesses

Some assets do not qualify

Permanent £1 million limit

Related businesses may need to share

Related Tax Rules

Full Expensing

Full expensing is available to limited companies and provides an unlimited 100% FYA on brand new plant and machinery (excluding cars and assets used for leasing).

First Year Allowance (FYA) – 40%

From 1 January 2026, a new 40% FYA is available to both companies and unincorporated businesses on main rate expenditure where AIA is unavailable.

Writing Down Allowance (WDA)

For expenditure not covered by AIA, WDA provides relief at 14% for the main rate pool and 6% for the special rate pool.

When to Seek Professional Advice

You should consider seeking professional advice if:

• Your total capital expenditure exceeds £1 million in a single year
• You own multiple businesses or are part of a corporate group
• You are unsure whether an asset qualifies for AIA
• Your accounting period is not 12 months
• You are a partnership with a corporate partner

A qualified accountant or tax adviser can help you maximise your claims while ensuring full compliance with HMRC rules.

Summary

The Annual Investment Allowance is one of the most valuable tax reliefs available to UK businesses. For the 2026/27 tax year:

• The AIA limit remains at £1 million – a permanent level since April 2023
• 100% tax relief is available on qualifying plant and machinery purchases
• Cars do not qualify – separate rules apply
• The main rate WDA has dropped from 18% to 14% from April 2026
• A new 40% FYA is available from 1 January 2026 for expenditure not covered by AIA

Use our Annual Investment Allowance Calculator to quickly work out your potential tax savings and plan your capital expenditure with confidence.

All information in this guide is based on official HMRC and GOV.UK sources. Readers should verify current rates and allowances directly with HMRC before making financial decisions, as rules may change after publication.