If you run a marketing agency, a digital agency, or a creative agency in the UK, you buy equipment. Laptops for your design team. Servers for your development work. Office furniture for your studio in Shoreditch or the Northern Quarter. The Annual Investment Allowance (AIA) is the most straightforward way to get tax relief on those purchases.
For the 2025/26 tax year, the AIA remains at £1 million per year for most qualifying plant and machinery [1]. That is a generous limit. Most agencies will never hit it. But knowing how the allowance works, what qualifies, and what the 2025 Budget changed means you can time your spending to reduce your corporation tax bill.
What is the Annual Investment Allowance?
The AIA lets you deduct the full cost of qualifying assets from your taxable profits in the year you buy them. Instead of spreading the relief over several years through writing-down allowances, you get 100% relief immediately [2].
For a limited company paying corporation tax at 19% or 25%, that £10,000 server rack saves you £1,900 to £2,500 in tax. For a sole trader paying income tax at 40%, the same purchase saves you £4,000. The maths is simple. The timing matters.
The £1 million limit in 2025
The AIA limit has been set at £1 million since 1 January 2019. That figure is confirmed for the 2025/26 tax year and remains in place for the June 2026, December 2026, and June 2027 examination cycles [3].
If your accounting period is shorter than 12 months, the limit is pro-rated. A 9-month period gives you £750,000 of AIA [1]. If your business closes, you cannot claim AIA for items bought in the final accounting period [1].
What qualifies for the AIA?
The AIA covers most plant and machinery used in your trade [4]. For an agency, that typically includes:
- Computers, laptops, monitors, and tablets
- Servers, networking equipment, and data storage
- Office furniture, desks, chairs, and shelving
- Fixtures such as lighting, heating, and air conditioning
- Kitchen and break-room equipment
- Tools and equipment used by your team
The asset must be used wholly and exclusively for the purposes of your trade [4]. If you buy a laptop that you also use for personal browsing, you can only claim relief on the business-use proportion.
What does NOT qualify?
Several categories are explicitly excluded from the AIA [4]:
- Cars, no AIA on any car, regardless of cost or emissions
- Assets used for leasing, if you buy equipment to lease to others, it does not qualify
- Assets provided for the use of a director or employee, unless the asset is used wholly and exclusively for the trade
- Assets bought before your business starts trading, you cannot claim AIA on pre-trading expenditure
- Assets bought in the period your business ceases to trade, no AIA in the final accounting period
If you are unsure whether a specific purchase qualifies, ask your accountant before you buy. Our ICAEW qualified team can review your planned expenditure and confirm the relief available.
When is an asset "bought"?
The date you buy an asset determines which accounting period the AIA claim falls into. HMRC defines the purchase date as [1]:
- The date you sign the contract, if payment is due within less than 4 months
- The date payment is due, if it is due more than 4 months after the contract
For hire purchase contracts, you can claim AIA on the full cost when you start using the asset, even though you are still making payments [1].
This timing rule is useful for year-end planning. If you sign a contract for £50,000 of new workstations on 31 March 2026, with payment due within 30 days, the AIA claim falls into your 2025/26 accounting period. If you sign the same contract on 2 April 2026, it falls into 2026/27.
What changed in the 2025 Budget?
The 2025 Budget introduced two significant changes to capital allowances that affect agency founders [5][6]:
Writing-down allowance rate reduction
The main rate of writing-down allowance for plant and machinery is reducing from 18% to 14%. This change takes effect from 1 April 2026 for corporation tax and 6 April 2026 for income tax [5].
This matters because any expenditure that does not qualify for the AIA, or that exceeds your AIA limit, will be written down at 14% instead of 18% from April 2026. The government expects this change to raise £1.5 billion by 2029-30 [6].
New 40% first-year allowance
From 1 January 2026, a new 40% first-year allowance will apply to main rate assets. This covers new expenditure on eligible assets, including most plant and machinery for leasing. It excludes second-hand assets, cars, and assets leased overseas [5].
For most agency founders, the AIA at 100% will remain the better option. The 40% first-year allowance is relevant if you have already used your full £1 million AIA limit, or if you are buying assets that do not qualify for the AIA.
Electric vehicle charge points and zero-emission cars
The 100% first-year allowance for zero-emission cars and electric vehicle charge points remains in place until 31 March 2027 for corporation tax and 5 April 2027 for income tax [5]. If you are considering electric vans or pool cars for your agency, the relief is generous.
How to claim the AIA
You claim the AIA through your annual tax return or company tax return. For a limited company, the claim goes on the CT600 form. For a sole trader or partnership, it goes on the self-assessment return.
You can only claim AIA in the period you bought the item [1]. You cannot go back and claim it later. If you miss the claim, you lose the relief for that asset.
Keep detailed records of every qualifying purchase. Your accountant will need the invoice, the contract date, the payment date, and evidence that the asset is used wholly and exclusively for the trade.
Practical planning for agency founders
Here is how to use the AIA to reduce your tax bill:
Time your spending. If your agency has a profitable year and you need new equipment, buy it before your year-end. The AIA relief reduces your taxable profit in that year.
Group purchases. If you are planning a studio fit-out or a full hardware refresh, do it in one accounting period to maximise the AIA claim. Spreading purchases across two years means you lose the benefit of the full £1 million limit in each year.
Watch the writing-down allowance change. With the main rate dropping to 14% from April 2026, there is an incentive to bring qualifying expenditure forward into the current year. Every £10,000 of assets you buy before April 2026 attracts 100% AIA relief. After April 2026, anything above your AIA limit is written down at 14% per year instead of 18%.
Consider a holding company structure. If you own multiple agencies, a holding company can route dividends and manage capital allowances across the group. Our incorporation and structure guide covers this in more detail.
Common mistakes agency founders make
Claiming AIA on cars. This is the most common error. No car qualifies for the AIA, regardless of cost or emissions. Use the 100% first-year allowance for zero-emission cars instead.
Claiming AIA on assets used personally. If you buy a laptop for the business but your teenage son uses it for gaming at weekends, HMRC will challenge the claim. Keep a log of business use.
Missing the timing rule. The AIA claim is based on the contract date, not the payment date. If you sign a contract in one accounting period but pay in the next, the claim goes in the period you signed.
Forgetting the cessation rule. If you close your agency, you cannot claim AIA on assets bought in the final accounting period. Plan your equipment purchases accordingly.
How Agency Founder Finance can help
We are ICAEW qualified accountants who work exclusively with agency founders. We know how agencies operate, what equipment they need, and how to structure capital allowance claims for maximum tax relief.
If you are planning a significant equipment purchase, or if you want to review your current year's capital allowance position, get in touch. We will run the numbers and tell you exactly what relief you are entitled to.
We also work with marketing agencies, digital agencies, and creative agencies across the UK. If your agency is based in Manchester, Bristol, London, or anywhere else, the same rules apply.
Final thoughts
The Annual Investment Allowance is one of the most valuable tax reliefs available to agency founders. At £1 million per year, the limit is generous enough to cover almost any equipment purchase your agency will make. The 2025 Budget changes to writing-down allowances make it even more important to plan your spending before April 2026.
Talk to your accountant before you buy. A few minutes of planning can save you thousands in tax.
Sources
- gov.uk: Claim capital allowances: Annual investment allowance - GOV.UK
- aka.hmrc.gov.uk: Claim capital allowances: Overview - GOV.UK
- accaglobal.com: Finance Act 2025 | FTX Foundations in Taxation - ACCA
- icaew.com: Winners and losers from capital allowances changes - ICAEW.com
- taxscape.deloitte.com: writing-down allowances rate reduction and new first-year allowance
- globaltaxnews.ey.com: UK introduces Budget 2025 - Global Tax News Update - EY