# Annual Investment Allowance: £1 million a period, cut pro rata for a short accounting period, worked for a client

> GOV.UK sets the Annual Investment Allowance at £1 million for a 12-month period. Worked for a 9-month period, an excess purchase and shared companies.

- Page to cite: https://aeolookup.com/accountants/annual-investment-allowance-1-million-short-accounting-period-pro-rata-client-worked/
- Publisher: AEO Lookup (https://aeolookup.com/)
- Section: Accountancy practices, Running the practice
- Published 26 October 2026
- Key fact: 12 months: £1,000,000. 9 months: 9/12 x £1,000,000 = £750,000; 6 months: £500,000; 15 months: £1,250,000. Purchases of £1,180,000 in 12 months leave £180,000 over the limit. Purchases of £820,000 in 9 months leave £70,000 over the £750,000 limit. A £30,000 asset used 80% for business gives £24,000. Two companies with one controller share £1,000,000, for example £600,000 and £400,000.
- Sources: GOV.UK, "Annual Investment Allowance" (the AIA amount is £1 million; a new allowance for each accounting period; adjust for a period shorter or longer than 12 months, example 9/12 x £1,000,000 = £750,000; claim only in the period of purchase; contract date if payment is due within 4 months, otherwise the payment due date; business cars excluded; mixed use reduces the claim; companies under the same control share one allowance; no AIA for items bought in the final period before closure). Read 26 October 2026.

A client is about to buy a new van, a workshop machine or a set of kitchen equipment, and asks how much of it they can set against this year's profit. For most plant and machinery the answer is the Annual Investment Allowance. The limit is a fixed amount, but it moves when the accounting period is not 12 months. This guide works the sums for one example client.

## What the source says

GOV.UK says the AIA amount is £1 million, and that a business can claim it on most plant and machinery up to that amount, giving relief against profits before tax for the full value of a qualifying item. A business gets a new allowance for each accounting period. If the period is shorter or longer than 12 months the limit is adjusted; the GOV.UK example is a 9-month period, where the limit is 9/12 x £1,000,000 = £750,000. If the limit changed during the period, the amount claimed has to be adjusted as well.

It cannot be claimed on business cars, on items the business already owned for another reason before using them in the business, or on items given to the business. Those fall under writing down allowances. Where purchases are above the limit, the excess can go into first-year or writing down allowances, and one item can be split between types. A claim can also be less than the full cost.

## The sums: the limit for different period lengths

The limit is £1,000,000 x months / 12.

| Accounting period | Working | AIA limit |
|---|---|---|
| 12 months | £1,000,000 x 12/12 | **£1,000,000** |
| 9 months | £1,000,000 x 9/12 | **£750,000** |
| 6 months | £1,000,000 x 6/12 | **£500,000** |
| 15 months | £1,000,000 x 15/12 | **£1,250,000** |

Check: £1,000,000 / 12 = £83,333.33 a month, so 9 months is £750,000, 6 months £500,000 and 15 months £1,250,000. GOV.UK says periods longer than 18 months, and periods with gaps or overlaps, follow different rules, so do not use this table for those.

## What happens above the limit

| Client | Purchases in the period | Limit | Within AIA | Excess for other allowances |
|---|---|---|---|---|
| Trading a full year | £1,180,000 | £1,000,000 | £1,000,000 | **£180,000** |
| First period of 9 months | £820,000 | £750,000 | £750,000 | **£70,000** |
| Small purchase, 12 months | £64,000 | £1,000,000 | £64,000 | £0 |

Check: £1,180,000 - £1,000,000 = £180,000. £820,000 - £750,000 = £70,000. The £64,000 row is fully inside the limit. The rate of the other allowances is not worked here because I did not read it.

## Three cases that change the figure

- **Mixed use (sole traders and partnerships).** GOV.UK says the claim is reduced by the proportion used outside the business. A £30,000 machine used 80% for the business gives £30,000 x 80% = **£24,000**; £6,000 is private.
- **Companies under the same control.** GOV.UK says two or more limited companies controlled by the same person get one AIA between them, and can decide how to split it. With one £1,000,000 allowance, £600,000 + £400,000 = £1,000,000, so neither company can claim a further £1,000,000. Sole traders and partnerships usually get one allowance per business, with exceptions where businesses share a controller and the same premises or similar activities.
- **The purchase date.** The claim is made only in the period of purchase. GOV.UK gives the date as the contract signing date if payment is due within 4 months, or the payment due date if it falls more than 4 months later. Example: contract signed 20 March, payment due 25 August. The four months end on 20 July, so 25 August is later, and the purchase falls in the period containing 25 August, which can be the next period for a year end of 30 June.

Check the last example: 20 March plus 4 months is 20 July; 25 August is after that; a 30 June year end falls between 20 March and 25 August.

## Why it matters to the client

- **A short first period shrinks the limit.** A client who starts trading mid-year and buys equipment at launch can hit the pro-rated limit sooner than they expect.
- **Closure.** GOV.UK says that if the business closes, AIA cannot be claimed for items bought in the final accounting period; a balancing charge or allowance is used on the closing return instead.
- **Related guides.** Other allowances a practice weighs for the same client include [the Employment Allowance](https://aeolookup.com/accountants/employment-allowance-10500-which-clients-can-claim-worked/) and [the trading allowance against expenses](https://aeolookup.com/accountants/trading-allowance-1000-or-expenses-which-is-better-for-a-client/), and a profit figure falls into [marginal relief for associated companies](https://aeolookup.com/accountants/corporation-tax-marginal-relief-50000-250000-associated-companies-worked/).

## What I did not read

I did not read the GOV.UK pages on writing down allowances, first-year allowances, the full-expensing rules, or the HMRC manual on the AIA. I did not read how a hire purchase contract is treated beyond the summary line. The sums assume a limit of £1 million for a 12-month period and a straight monthly pro rata for periods up to 18 months, and I have not checked any client's own period dates.

Overlyft ![](https://aeolookup.com/img/d/ours-badge.png) builds AI staff who join your practice team and take the equipment purchase list for a client, work out the pro-rated limit for the accounting period and the excess over it, and show the claim for a person to approve before it goes on a return.

This is general information, not legal or financial advice. Check the GOV.UK and HMRC pages for your client's case.

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General information for UK small firms, not legal, tax or financial advice.