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HMRC internal manual

Capital Allowances Manual

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 £25,000 a year. It is available to businesses regardless or their size or legal form. The current AIA annual amount applies to expenditure incurred on or after 1 April 2012(for CT purposes) or 6 April 2012 (for IT purposes). (Between 1/6 April 2008 and 31 March/5 April 2010 the AIA annual amount was £50,000. Between 1/6 April 2010 and 31 March/5 April 2012 the AIA annual amount was £100,000)


The AIA was introduced in FA 2008 as part of the wider ‘Business tax reform’ package CA10040. It is intended to provide both an incentive to invest and a major simplification of the tax system for businesses, particularly smaller businesses. It is a simplification because 95% of UK businesses invest less than £25,000 a year in plant or machinery, so the vast majority of businesses will no longer have to make WDA calculations every year and keep a record of the pool of unrelieved expenditure to be carried forward. It is also a simplification because the rules are designed to be as ‘light touch’ and flexible as possible. The AIA replaced the previous 50% or 40% first-year allowances (FYAs) for small or medium-sized enterprises (SMEs) CA23160, which were abolished by FA2008.

Main features

  • The AIA must be claimed by a “qualifying person” CA23082
  • The qualifying person must incur qualifying expenditure on or after the relevant date CA23083.
  • 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 is £25,000 a year, but if the chargeable period is more or less than a year, that amount must be proportionately increased or reduced, and the AIA does not have to be claimed in whole or in part CA23085.
  • 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.