Accelerated Capital Allowances

Capital Allowances

Capital allowances are amounts a business can deduct from its profits for qualifying capital expenditure before calculating its overall tax liability (income/corporation tax). As depreciation isn’t allowable for tax, capital allowances compensate for this.

Capital allowances are available where the provisions of Section 284 TCA are met.  A person carrying on a trade must incur capital expenditure on the provision of machinery or plant for the purposes of that trade. 

Accelerated Capital Allowances for Energy-Efficient Equipment

Section 285A Taxes Consolidation Act, 1997 (“TCA”) provides for accelerated capital allowances in respect of expenditure incurred by tax payers on certain energy-efficient equipment bought for the purposes of their trade.  The incentive is to run until 31 December 2020.  

ACA is based on the existing capital allowances tax structure or wear and tear allowance, for plants and machinery. Claiming the ACA is carried out the same way as for the standard capital allowances.

Organisations who invest in eligible energy efficient capital equipment can deduct the full cost of the equipment from their profits in the year of purchase. This reduces the taxable profit in year one by the full cost of the equipment.

The main features of the scheme are as follows:   

• Capital allowances of 100% are available in the year in which expenditure on qualifying equipment is incurred.  
• To qualify, the equipment must meet certain energy-efficiency criteria (laid down by the Minister for Communication, Energy and Natural Resources) and be specified on a list of approved products. SEAI is responsible for maintaining the list; and
• Energy-efficient equipment on the list will fall into one of ten designated classes of technology. Expenditure must be above a certain minimum amount to qualify for the increased allowance. These classes of technology are listed in the Table in Schedule 4A TCA 1997 (see Appendix A below).

The energy-efficient equipment must satisfy the following criteria:

• The equipment must be new.
• It must be acquired for the purposes of the trade.
• It must be wholly and exclusively so used for the purposes of the trade.
• It must be in use at the end of the chargeable period for which the allowances are claimed.
• It must meet specified energy-efficient criteria
• It must fall within specified classes of technology listed in Schedule 4A TCA; and
• It must have met the minimum expenditure limits for each class of technology

Energy-efficient equipment that is machinery or plant but that has not been approved can avail of the normal wear and tear allowances (12.5% over 8 years).

Balancing Adjustment - Ceasing to use Equipment

The normal rules regarding balancing allowances/charges in Section 288 TCA apply.  Where certain ‘balancing’ events occur, for example, the sale of the equipment or it ceasing to be used for the purposes of the trade, additional wear and tear allowances may be due, or there may be a clawback of the allowances already granted.  This will depend on the proceeds or value of the equipment (or deemed proceeds/value) at the time of the event.

Who can qualify for the incentive?

Accelerated allowances are only available to companies who incur expenditure on approved energy-efficient equipment for use in their trade.  The equipment must be owned by the company. Equipment that is leased, let or hired will not qualify for the allowance.