CA23081 - PMA: qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: outline

CAA01/S38A and S38B, S51A to S51N

What is the Annual Investment Allowance (AIA)?

The AIA is effectively a 100% first-year allowance for business expenditure on almost all plant or machinery (apart from cars) capped at a maximum allowance. It is available to businesses regardless of their size or legal form. The current and past AIA maximums and the date ranges for which they apply can be found on ‘Claim capital allowances - Annual investment allowance’,


The AIA was introduced in FA 2008 as part of the wider ‘Business tax reform’ package CA10040. The purpose was to provide an incentive to invest and to simplify the tax system for businesses, particularly smaller businesses, the vast majority of which invest less than the maximum allowance and therefore, since the introduction of the AIA, are not generally required to make WDA calculations every year.

Main features

  • The AIA must be claimed by a ‘qualifying person’ CA23082
  • The qualifying expenditure must be AIA qualifying expenditure CA23084, (this definition covers almost all plant or machinery expenditure, subject to a small number of general exclusions).
  • The maximum AIA for a year is set in statute (see ‘Claim capital allowances - Annual investment allowance’, If the chargeable period is more or less than a year, that amount must be proportionately increased or reduced. CA23085.
  • Taxpayers are not obliged to claim the AIA. A taxpayer may choose to claim all, part or none of the AIA.
  • There are certain restrictions on entitlement CA23087, for example, where the AIA is claimed in relation to an asset which is partly used for non-business purposes, or where two or more businesses under common control are ‘related’ CA23088 and CA23089.

There are two simple tests of whether two or more businesses are related: the ‘same premises’ test and the ‘similar activities’ test CA23090.