Annual Investment Allowance and full expensing for small companies

Plant and machinery in the ordinary sense: computers, tools, machinery, commercial vehicles, office furniture and fittings, and integral features such as electrical and heating systems in a commercial property.

Cars never qualify for the AIA. Zero-emission cars have their own first-year allowance; other cars go into the main or special rate pool at 18% or 6% a year.

The AIA is capped at £1m a year but accepts second-hand assets and special rate expenditure. Full expensing is uncapped but requires new and unused main-rate assets, with a 50% first-year allowance for new special rate items.

Most owner-managed companies never touch the cap, so the AIA is the simpler route. Full expensing matters for capital-intensive companies spending above £1m.

The deduction is given in the accounting period in which the expenditure is incurred, broadly when the obligation to pay becomes unconditional. Buying a week either side of the year end moves the relief a full year.

A company in the marginal relief band saves tax at the marginal rate of 26.5%, so the same purchase is worth more there than in a company paying the 19% small profits rate. Sometimes deferring a purchase into a more profitable year is the better answer.

When you sell an asset on which you claimed the full deduction, the proceeds are brought back into the pool and can create a balancing charge, increasing taxable profit.

Full expensing has its own immediate balancing charge rules, so keep a proper fixed asset register rather than discovering the position on sale.

Rates, thresholds and deadlines quoted here reflect the 2026/27 UK tax year. Check current GOV.UK guidance, or ask us, before relying on them for your own company.