If you run a marketing, digital, or creative agency, you will buy equipment. Laptops for your team. Office furniture. Servers. Software licences. The question is whether you can claim the Annual Investment Allowance (AIA) on second-hand assets.
The short answer is yes, in most cases. But there are specific rules that catch agency founders out. Buy a second-hand server from a liquidator and you are fine. Buy your brother's old MacBook for the business and you are not. The difference matters for your corporation tax bill.
This article explains exactly when second-hand assets qualify for AIA, when they do not, and what to do if you are unsure. We are ICAEW qualified accountants who work exclusively with agency founders. These are the rules we apply every day.
What Is the Annual Investment Allowance?
The Annual Investment Allowance (AIA) gives you 100% tax relief on the cost of most plant and machinery in the year you buy it. You deduct the full cost from your profits before corporation tax is calculated. For a limited company paying 19% or 25% corporation tax, that is a significant saving.
The AIA limit is £1 million per year for most businesses [1]. That is a generous allowance. Most agencies will not hit that cap unless they are buying a whole office fit-out or a fleet of vehicles. For a 12-person agency buying laptops, desks, and a server, the AIA covers the full cost.
You can claim AIA on most plant and machinery [2]. That includes computers, office furniture, tools, machinery, vans, and lorries. It does not include cars, assets used for leasing, or assets that are not plant and machinery [3].
Do Second-Hand Assets Qualify for AIA?
Yes. Second-hand assets qualify for AIA if they are new to your business and have not been used by a connected party before [3]. That is the key test. HMRC guidance states that the asset must be unused and not have been previously owned by the claimant or a person connected with the claimant [3].
In plain English: if you buy a second-hand laptop from a stranger on eBay, it qualifies. If you buy the same laptop from your spouse, it does not. The rule exists to stop people moving assets between connected businesses or family members to claim relief twice.
What Counts as a Connected Person?
HMRC defines connected persons broadly. It includes:
- Your spouse or civil partner
- Your children, parents, and grandparents
- A company you control
- A partner in a business you are involved in
- A trust where you are a beneficiary or trustee
If you buy a second-hand asset from any of these people, you cannot claim AIA on it. You can still claim capital allowances through the main pool, but at a lower rate (typically 18% or 6% per year on a reducing balance basis).
What About Assets You Already Owned?
This is a common trap for sole traders who incorporate their agency. You have been running as a sole trader for years. You decide to set up a limited company. You transfer your laptop, desk, and camera equipment into the new company.
You cannot claim AIA on those items. HMRC is clear: you cannot claim AIA on items you owned for another reason before you started using them in your business [1]. The asset was not new to you. You owned it personally before the business used it.
The same rule applies to gifts. If someone gives you equipment for your agency, you cannot claim AIA on it [1]. Use the market value instead when calculating capital allowances [2]. That means you claim the lower rate of writing down allowance on the market value, not the full AIA.
How to Value Second-Hand Assets for AIA
In most cases, the value is what you paid for the item [2]. If you buy a second-hand server for £3,400, you claim AIA on £3,400. Keep the receipt. HMRC can ask for it.
If you owned the asset before using it in the business, or if it was a gift, use the market value instead [2]. Market value is what you would pay to buy that item second-hand from an unrelated seller. For a three-year-old MacBook Pro in good condition, that might be £800. For a desk that cost £1,200 new five years ago, maybe £200.
Get a written valuation if the amount is significant. A note from a second-hand dealer or a screenshot of comparable eBay listings is usually enough for a reasonable HMRC officer.
What Does Not Qualify for AIA?
Some assets are excluded from AIA entirely, whether new or second-hand:
- Cars, you cannot claim AIA on cars. You claim writing down allowances at 18% or 6% depending on CO2 emissions.
- Assets used for leasing, if you buy equipment to lease to clients, AIA does not apply.
- Assets with a useful life under two years, HMRC will normally accept that expenditure on an asset with a useful economic life of less than two years is revenue in nature [4]. That means you deduct it as an expense, not a capital allowance.
- Assets bought from a connected person, as explained above.
If an item qualifies for more than one capital allowance, you can choose which one to use [2]. That is useful if you want to maximise relief in a particular year.
Software and Website Costs: A Special Case for Agencies
Agencies spend heavily on software. Design tools, project management platforms, CRM systems. The tax treatment depends on how you pay and how long the software lasts.
If a software licence is paid for by regular periodic payments akin to a rental, HMRC will normally accept that those payments are revenue in nature [4]. You deduct them as an expense each year. No capital allowance claim needed.
If you buy a perpetual licence (a one-off payment for ongoing use), that is capital expenditure. It qualifies for AIA if the software has a useful economic life of two years or more [4]. If the useful life is expected to be less than two years, HMRC will generally accept that the payment is revenue in nature [4].
HMRC will not accept that software has a limited life solely because new updated versions are released at intervals of less than two years [4]. The question is whether your business actually trades up to the new version at sufficiently short intervals. If you upgrade every 18 months, the old licence has a short useful life. If you keep using the same version for four years, it does not.
Website costs follow similar rules. If you build a new website for your agency, the design and development costs are usually capital. If you make piecemeal changes or minor improvements, those costs are revenue [4]. The salaries of IT staff will not normally be capital expenditure unless some major new project can be identified [4].
What Happens When You Sell an Asset You Claimed AIA On?
If you sell the item after claiming AIA, you may need to pay tax [1]. The proceeds are brought into your capital allowance pool and may create a balancing charge. In simple terms: if you claimed 100% relief on a £3,000 laptop and sell it for £500 two years later, that £500 is taxable as a balancing charge.
This is not a penalty. It is HMRC recovering the relief you claimed on the value you no longer have invested in the asset. The net effect is that you get relief on the actual cost to you, which is the purchase price minus the sale proceeds.
Practical Steps for Agency Founders
Here is what to do when buying second-hand assets for your agency:
- Check the seller. Is it a connected person? If yes, no AIA. Claim writing down allowances instead.
- Keep the receipt. You need proof of purchase and proof of the amount paid.
- Check the useful life. If the asset will last less than two years, treat it as revenue expenditure.
- Decide on cars separately. Cars never qualify for AIA. Use the appropriate pool rate.
- Record market value for gifted or transferred assets. Get a written valuation if the amount is material.
If your agency is growing and you are buying equipment regularly, it is worth reviewing your capital allowance position with your accountant. The AIA limit is £1 million until 31 March 2026 [3]. That is a lot of headroom for most agencies, but the rules on connected parties and second-hand assets catch people out.
We work with agency founders across the UK, from Shoreditch to Manchester's Northern Quarter. If your contractor mix has changed or you are buying significant equipment, speak to our ICAEW qualified team before your year-end. A five-minute conversation can save you thousands in tax.
For more on agency-specific tax planning, read our tax and compliance articles or see how we help digital agencies structure their finances.
Sources
- gov.uk: Claim capital allowances: Annual investment allowance - GOV.UK
- aka.hmrc.gov.uk: Claim capital allowances: Overview - GOV.UK
- icaew.com: A lowdown on full expensing for SMEs - ICAEW.com
- att.org.uk: Tax treatment of software and website costs - ATT