Most don’t take full advantage of it. Some don’t know it exists. Others plan to “sort it later” and end up making rushed decisions in March.

If you have equipment, vehicles, or machinery to invest in this year, here’s what you need to know – and why the start of the tax year is the right time to think about it.

What Is the Annual Investment Allowance?

The Annual Investment Allowance (AIA) lets you deduct 100% of the cost of qualifying plant and machinery from your taxable profits – in the year you buy the asset.

The limit is £1 million per accounting period. It was confirmed at this level in the 2025 Autumn Budget and will stay there for the duration of this Parliament.

It applies to both limited companies and unincorporated businesses – sole traders and qualifying partnerships included.

In practical terms: buy a £50,000 piece of equipment this year, claim the AIA, and you reduce your taxable profits by £50,000. At the 25% corporation tax rate, that’s £12,500 back. In the same year.

What’s Changed From April 2026

The headline AIA limit hasn’t changed. But something else has.

The writing down allowance (WDA) – the relief you get on assets once the AIA limit is used up, or on older assets already in your pool – has dropped from 18% to 14% from 1 April 2026 for corporation tax, and 6 April 2026 for income tax.

For most SMEs spending well within the £1 million limit, this doesn’t change much day to day. But if you have a large historic pool of assets, or your capital spending regularly exceeds the AIA cap, your tax relief on that excess will now come through more slowly.

The practical upshot: using the AIA efficiently – claiming in the right period, on the right assets – matters more than it did before.

Finance and Tax Relief Work Together

You don’t have to buy an asset outright to claim the AIA on it.

If you acquire it through Hire Purchase, HMRC treats you as the owner from day one. That means you can claim the full AIA on the asset’s value in the year of acquisition – even though you’re paying in monthly instalments.

The interest on your HP payments is also generally tax-deductible as a business expense.

So you can protect your working capital, spread the cost, and still get the same upfront tax relief as if you’d paid for it outright. 

Why Timing Matters

The AIA must be claimed in the period the expenditure is incurred. You can’t backdate it.

That makes the start of the tax year the ideal time to plan. If you know you need a new vehicle, a piece of machinery, or a technology upgrade in the next 12 months, thinking about it now means:

•   You have time to compare finance structures properly
•   Your accountant can advise on the most tax-efficient timing relative to your year end
•   You’re not rushing a decision in January or February when your options are narrower

Businesses that plan capital investment early consistently get better terms and better tax outcomes than those that treat it as an afterthought.

A Quick Summary of the 2026/27 Position

•   AIA: £1 million per accounting period – 100% first-year relief on qualifying plant and machinery
•   Full Expensing: available to limited companies on new main pool assets, no upper limit
•   Writing Down Allowance: reduced to 14% (was 18%) from April 2026
•   New 40% First Year Allowance: available from January 2026 for unincorporated businesses and leasing arrangements
•   HP and AIA: you can claim the AIA on a hire purchase agreement – you don’t need to buy outright

As always, the right approach depends on your specific business structure, profitability, and accounting year. Speak to your accountant before making decisions.

Ready to Plan Your Investment for This Year?

At First Business Finance, we work with businesses across manufacturing, construction, commercial vehicles, IT, catering, and more – helping them find the right finance structure for the assets they need, with terms that work for their cash flow.

If you have equipment or vehicles on your list for 2026/27 and want to understand your options before committing, get in touch, we’re here to help. Call us on 01634 386869

All figures correct at time of writing (April 2026). This article is for general information only – please speak with a qualified accountant for advice specific to your business.

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