Annual Investment Allowance at £1 million — what qualifies, what does not, and how it sits with full expensing

For many small companies, the first question is not whether equipment is deductible, but how quickly. The Annual Investment Allowance lets a business deduct the full cost of qualifying plant and machinery, up to £1 million in a 12-month accounting period, in the year it is bought. GOV.UK shows that £1 million level applying from 1 January 2019.

Qualifying plant and machinery is broader than factory machines. It can include equipment and machinery kept for use in the business, some fixtures such as fitted kitchens and bathroom suites, and integral features such as lifts, heating and air-conditioning systems, hot and cold water systems, and electrical and lighting systems. Vans and lorries can also qualify.

Cars do not qualify for AIA, even if they are used only for business. They go into writing down allowance pools instead. Land, buildings and structures such as roads and bridges also do not count as plant and machinery, although structures and buildings allowance may be relevant separately. You also cannot claim AIA on leased items, unless you have a hire purchase contract or long funding lease, or on items you owned before starting the business or were given.

Full expensing is the company-only route. Only companies can claim it, and only for certain plant and machinery bought from 1 April 2023 that is new and unused and is not a car. It gives a 100% first-year deduction for qualifying main-rate plant and machinery, and a 50% first-year allowance for special-rate assets. You cannot claim both full expensing and AIA on the same expenditure, so each item needs one route.

If an item does not qualify for a first-year allowance, or the AIA limit has been used, writing down allowances spread relief over time. The main pool rate is 14% from April 2026, and 18% before, with the change on 1 April 2026 for corporation tax and 6 April 2026 for income tax, while the special rate pool is 6%. A practical order for a company is to use full expensing first for new main-rate plant, then AIA for what remains, especially second-hand equipment, because full expensing cannot help second-hand kit. For a small company spending well under £1 million, however, AIA alone usually gives the same 100% first-year result, so keep it simple and claim AIA.