This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Capital Allowances Manual

PMA: Qualifying expenditure: Annual Investment Allowance (AIA) qualifying expenditure: what is AIA qualifying expenditure?

CAA01/S38A and S38B, S51A to S51N

AIA qualifying expenditure

The general rule is that qualifying expenditure is

  • expenditure on the provision of plant or machinery wholly or partly for the purposes of a qualifying activity that the person incurring the expenditure carries on, and
  • the person incurring the expenditure owns the plant or machinery as a result of incurring the expenditure CA23010.


AIA qualifying expenditure is qualifying expenditure incurred by a qualifying person CA23082 on or after 1 April 2008 (for CT purposes) or 6 April 2008 (for IT purposes) that is not excluded by any of the five ‘general exclusions’ listed below.

So the AIA is available on virtually all plant or machinery expenditure (subject only to the general exclusions below). It may be claimed on long-life assets, integral features and other special rate expenditure, as well as on general plant and machinery, and the taxpayer is free to allocate his AIA against any type of P&M expenditure in any way he chooses. It is to be expected that taxpayers will commonly allocate the AIA against the expenditure that would otherwise receive the lowest rate of capital allowance (generally 8% special rate expenditure).

Some examples of AIA qualifying expenditure

‘Plant or machinery’ actually covers almost every sort of asset a person may buy for the purposes of his/her business. Really the only business assets not covered are land, buildings and cars (which are excluded by one of the ‘general exclusions’). Typical examples of plant or machinery include:

  • computers and all kinds of office furniture and equipment
  • vans, lorries, trucks, cranes and diggers
  • ‘integral features’ of a building or structure, see CA22320
  • other building fixtures, such as shop fittings, kitchen and bathroom fittings
  • all kinds of business machines, such as printing presses, lathes and tooling machines
  • tractors, combine harvesters and other agricultural machinery
  • gaming machines, amusement park rides
  • computerised /computer aided machinery, including robotic machines
  • wind turbines and fibre optic cabling.


Note: these are only illustrative examples; many other assets may comprise ‘plant or machinery’.

Expenditure qualifying for more than one allowance

Although the AIA replaced the previous 40% or 50% FYA for expenditure by SMEs CA23160, it does not replace other existing FYA schemes CA23100, for example, the 100% FYA for environmentally beneficial expenditure. The AIA also sits alongside other 100% allowances for which there are separate capital allowances codes, under other Parts of CAA 2001, for example, Research and Development Allowances (RDAs) CA60000, Flat Conversion Allowances (FCAs) CA43000, or Business Premises Renovation Allowances (BPRA) CA45000.

So although the same expenditure can qualify only once for tax relief (CAA01/S7 & S52A), if expenditure qualifies for more than one allowance the taxpayer may choose which allowance to claim and may allocate allowances in the way that is most beneficial to them.


Golden Aquarium Ltd is an expanding company selling tropical fish. In its 2009 chargeable period it incurs the following expenditure:

  • £95,000 on converting an empty warehouse in a disadvantaged area into a new retail outlet, qualifying for BPRA at 100%
  • £10,000 on environmentally beneficial (water conserving) equipment in its main shop, qualifying for FYA at 100%
  • £20,000 on new electrical and central heating systems for its main shop, which comprise ‘integral features’, qualifying for 10% WDAs
  • £80,000 on a new van and other general equipment, qualifying for 20% WDAs in the main pool.


Golden Aquarium Ltd can allocate its £50,000 AIA first to the £20,000 of 10% integral features expenditure, then the remaining £30,000 to the 20% main pool expenditure, thus preserving the 100% enhanced allowance for environmentally beneficial expenditure and the 100% allowance for BPRA expenditure. This allocation effectively replaces the 10% allowance for expenditure on integral features with a 100% allowance and leaves only £50,000 of general P&M expenditure in the main pool, qualifying for WDA at 20%.

General exclusions

Some, but not all, of the general exclusions that applied for the previous FYAs for SMEs CA23110 have been carried forward into the AIA rules. The AIA is not available on expenditure incurred -

General exclusion 1: in the chargeable period in which the qualifying activity is permanently discontinued

General exclusion 2: on the provision of a car CA23510

General exclusion 3: wholly for the purposes of a North Sea ring fence trade CA23157

General exclusion 4: where the asset is provided in connection with a change in the nature or conduct of a business carried on by someone else and the main benefit, or one of the main benefits, that could reasonably be expected from the change is obtaining an AIA. This is an anti- avoidance provision intended to stop a business that is not entitled to, or has exhausted its entitlement to, an AIA from getting round the AIA restrictions by effectively transferring the asset to another business that has not used up its entitlement. Here is an example of what it is intended to stop:

Smithson Plc is a business that has already used up its AIA for its current chargeable period. It wants to buy a lathe for £25,000. It makes a loan of £25,000 to Dan, a higher rate taxpayer, who buys the lathe for his new qualifying activity of operating the lathe, thus obtaining the AIA, with fixed supply and sale contracts with Smithson Plc. The lathe is installed in Smithson Plc’s factory and operated by its workforce on a subcontract basis. The tax saving is shared by Smithson Plc and Dan through the contract price.

The anti-avoidance legislation means that Dan is not entitled to the AIA and so the scheme does not work.

General exclusion 5: where the asset has been received as a gift CA23040 or has been brought into use for the purposes of a qualifying activity having been acquired for other purposes, including leasing under a long funding lease CA23030.