The Annual Investment Allowance (AIA) is a generous tax relief that allows for the total amount of qualifying expenditure on plant and machinery to be deducted from pre-tax profits. The maximum amount that can be claimed for the AIA is limited to a £1 million annual cap on qualifying purchases.

The AIA can be claimed by an individual, partnership or company carrying on a trade, profession or vocation, a UK non-residential property business or a furnished holiday let. Only partnerships or trusts with a mixture of individuals and companies in the business structure are unable to qualify for AIA.

The AIA is available for most assets purchased by a business, such as machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. The AIA does not apply to business cars, items you owned for another reason before you started using them in your business or items given to you or your business.

A claim for AIA must be made in the period the item was bought. This date is defined as the date when a contract was signed, if payment is due within 4 months of the contract being signed. If not, the actual payment date if it is due more than 4 months later.

The new 40% First Year Allowance (FYA) for qualifying main-rate plant and machinery expenditure first announced at Autumn Budget 2025 has now come into force.

Effective from 1 January 2026, the new FYA applies to qualifying main-rate plant and machinery expenditure. It was also announced at the recent Autumn Budget 2025 that the main rate writing down allowances would be reduced to 14% (from 18%) from 1 April 2026 for Corporation Tax purposes and from 6 April 2026 for Income Tax purposes.

These changes mean that:

• Businesses can claim a 40% FYA on qualifying main-rate plant and machinery.
• The allowance applies to assets acquired for leasing, which did not qualify from full expensing.
• Unincorporated businesses, including sole traders and partnerships can also benefit from the FYA. These businesses did not benefit from full expensing.
• The allowance is permanent, providing long-term certainty for investment and capital planning.

The new FYA complements the existing full expensing regime, which remains in place for incorporated businesses. Full expensing allows companies to deduct 100% of the cost of qualifying plant and machinery from taxable profits in the year of acquisition, delivering tax savings of up to 25p for every £1 invested, in line with the current Corporation Tax rate.

Understanding how the new 40% FYA interacts with existing allowances, including full expensing and annual investment allowances, will be important when considering expenditure going forward.

An extension of First-Year Allowances (FYA) for zero-emission cars and charge points was announced as part of the recent Budget measures.

This means that the 100% FYA for qualifying expenditure on zero-emission cars, and electric vehicle (EV) charge points will now be available until 31 March 2027 for Corporation Tax purposes, and until 5 April 2027 for Income Tax purposes. This one-year extension to the current reliefs means that eligible businesses can continue to deduct 100% of the cost of these assets from their taxable profits in the year the expenditure is incurred until the relief expires.

The FYA for cars was introduced from 17 April 2002 for low CO₂-emission vehicles, including electric cars, and was then restricted to zero-emission cars from April 2021. The FYA for electric vehicle charge points was introduced in November 2016. Both of these allowances are intended to support the UK’s move towards cleaner vehicles.

According to HMRC’s figures, this measure is expected to benefit around 13,000 incorporated businesses and 6,000 unincorporated businesses by continuing to offer 100% tax relief in the year the expenditure is incurred for qualifying expenditure on zero-emission cars and EV charge points.

Writing-down allowances (WDAs) are a type of capital allowance that let you deduct a percentage of an asset’s value from your taxable profits each year. In some cases, you may be able to claim more relief using other capital allowances, such as the Annual Investment Allowance or first-year allowances.

There are two rates of WDA for plant and machinery. To calculate them, you first group your expenditure into separate pools:

• the main pool – this includes expenditure on most items – the rate is 18%; and
• the special rate pool includes special rate expenditure including long-life assets, integral features, certain thermal insulation and some cars – the rate is 6%.

Assets are grouped into pools, and WDAs are applied to the balance of each pool after adding new purchases, deducting disposal and accounting for any private use.

The Small Pools Allowance provides an alternative to WDAs. If the balance in the main or special rate pool is £1,000 or less, you can claim the entire amount in one year rather than applying the WDA percentage. The Small Pools Allowance cannot be used for single-asset pools and is prorated for accounting periods shorter or longer than 12 months. You can choose between claiming WDAs or the Small Pools Allowance, where possible, but cannot claim both.

Buying a zero-emission electric car through your limited company could mean 100% tax relief in year one. Understand the capital allowances and boost your business’s tax efficiency with smart vehicle choices.

If you are considering purchasing a company car through a limited company, it’s important to understand the tax implications, especially the significant tax write-offs available for electric vehicles with zero emissions.

The tax treatment will depend on how the car is financed, but in most cases, the vehicle will be classified as a fixed asset, with tax relief available through capital allowances. Unlike other business assets, company cars do not qualify for the Annual Investment Allowance (AIA). Instead, they fall into specific capital allowance categories based on their CO₂ emissions and when they were purchased.

If you purchase a new and unused fully electric or zero-emission car, it qualifies for a 100% First Year Allowance (FYA). This means:

• You can deduct the full cost of the car from your company’s taxable profits in the year of purchase.
• The car must be brand new and registered as zero-emission to qualify.

If the car does not meet the criteria for 100% FYA, it will fall into one of the following categories:

• 18% Main Rate Allowance: Applies to cars with lower CO₂ emissions (but not zero). 18% of the car’s cost can be written off each year on a reducing balance basis.
• 6% Special Rate Allowance: Applies to cars with higher CO₂ emissions or certain second-hand vehicles. Only 6% of the cost is deductible each year.