One of the very exciting announcements of the chancellors 2014 budget this morning was the increase of the Annual Investment Allowance to £500,000 to the end of 2015.

The Annual Investment Allowance, introduced in 2008 was initially cut by the coalition from £100,000 to £25,000. It was then increased for a limited period to £250,000 which was due to end on 31st December 2014.This has not only been extended, but doubled to £500,000 from 1 April 2014 for corporation tax, and 6 April for income tax, until the 31st December 2015.

The Annual Investment Allowance is a type of capital allowance that allows a 100% immediate tax offset in the year of purchase for both general and ‘special rate’ investment in plant and machinery. Common examples of plant and machinery are: computers, office furniture & equipment, vans & lorries, business machinery, farming equipment and wind turbines. There are some exceptions, the main one being cars. Should a business invest more in plant and machinery than the maximum Annual Investment Allowance, the balance is added to the appropriate asset pool, and is then eligible to the annual ‘writing down allowance’ which is an offset of 18% or 8% depending on the type of asset. It is much used and valued by businesses and the increase has been welcomed by industry. As in previous years, where the allowance value has changed there will be transitional rules that pro rata the rate between the different periods.