Annual Investment Allowance on Commercial Vehicles
The Annual Investment Allowance (AIA) lets businesses deduct the full cost of qualifying plant and machinery - including commercial vehicles - against taxable profits in the year of purchase. The current limit is £1,000,000 per year. For most small and medium haulage operators, this means the entire cost of a new lorry, van or truck can be written off in year one.
To claim AIA on a commercial vehicle, you must be buying the asset outright or on hire purchase (HP). Under HP, HMRC treats you as the owner from the date you take delivery, so the full purchase price qualifies for AIA from day one.
Writing Down Allowances - 18% and 6% Pools
If your AIA headroom is exhausted, you claim a Writing Down Allowance instead. Most commercial vehicles - vans, rigid lorries, articulated units, curtainsiders, tippers, refrigerated trucks - go into the 18% main pool. Some specialist or high-emission vehicles may fall into the 6% special-rate pool. The balance reduces each year on a pooled basis.
Finance Lease - No Capital Allowances
Under a finance lease the lessor retains legal ownership throughout. You cannot claim AIA or WDAs. Instead, you deduct the rental payments as a revenue expense against profits. Under FRS102, a finance lease creates a right-of-use asset and a liability on your balance sheet, with the finance charge going through the P&L.
Contract Hire - Rental Deduction Only
Contract hire is an operating lease. No capital allowances apply. The monthly rental is fully deductible as a business expense assuming 100% business use. Maintenance packages bundled into the rental are also deductible.
First Year Allowances - Zero-Emission Vehicles
Electric vans and zero-emission trucks qualify for a 100% First Year Allowance - particularly valuable for businesses investing in EV fleets ahead of zero-emission zone requirements. The FYA applies to HP and outright purchase only, not finance leases.
| Finance Structure | Capital Allowance? | Tax Relief Method | EV FYA? |
|---|---|---|---|
| Hire Purchase (HP) | Yes - AIA up to £1m, then 18% WDA | Capital allowances on asset value | Yes - 100% |
| Finance Lease | No | Rental deduction as revenue expense | No |
| Contract Hire | No | Monthly rental as revenue expense | No |
| Outright Purchase | Yes - AIA up to £1m, then 18% WDA | Capital allowances on asset value | Yes - 100% |
Worked Examples
Sole Trader Buying a Ford Transit on HP
A sole trader buys a Transit Custom for £42,000 on HP in April 2026. AIA headroom is available. They can deduct the full £42,000 in 2025/26, saving £8,400 in income tax at 20% (or £16,800 at 40%). The HP interest payments are also deductible as a finance cost.
Limited Company on Finance Lease - Volvo FH
A haulage company leases a Volvo FH tractor unit on a 60-month finance lease at £2,200/month. No capital allowances apply. The company deducts £26,400 per year as a revenue expense, saving approximately £5,016 in corporation tax at 19% or up to £6,600 at 25%.