The Chancellor’s announcement of a temporary five-fold increase in the Annual Investment Allowance (AIA) will be welcomed by many small and medium sized businesses looking to incur significant capital expenditure on plant and machinery.The Annual Investment Allowance (AIA) was permanently set at £200,000 for all qualifying expenditure on or after 1 January 2016. The announcement by the Chancellor provides for a temporary increase in the allowance to £1 million for a 2 year period from 1 January 2019 to 31 December 2020. The AIA allows for 100% first year tax relief for qualifying expenditure on plant and machinery. It can be claimed by an individual, partnership or company carrying on a trade, profession or vocation, a UK non-residential property business or a furnished holiday let. Partnerships or trusts with individuals and companies in the business structure do not qualify for the AIA. The AIA is available for most assets purchased by a business, such as machines and tools, vans, lorries, diggers, office equipment, building fixtures and computers. The AIA does not apply to cars.Businesses thinking of incurring large items of capital expenditure over the coming months should ensure that any purchase is properly timed to take full advantage of the temporary increase in the AIA limit.