Capital allowances are available for companies in much the same way as for individuals.  As with individuals, depreciation is not directly allowed as a deduction. Depreciation is added back in calculating trading profits.

Capital allowances are allowed over specified periods in respect of certain types of assets. They are not available in respect of all assets including most notably premises other than industrial buildings.

Over time various incentives have permitted tax write down for assets which do not usually enjoy capital allowances, as a tool of policy. Many of these related to property and development. Most such schemes no longer exist.

Common types

Allowances are available for plant, machinery and industrial buildings on the same terms and conditions as apply to individuals in respect of income tax.  The allowance is available if the plant, equipment or industrial building is in use in the trade at the end of the requisite tax assessment period.

Capital allowances are available on certain targeted expenditures,

  • computer software.
  • energy efficient equipment.
  • Vehicles both passenger and commercial; they are subject to special restrictions; electric and alternative fuel vehicles qualify for special allowances
  • Patents and scientific research
  • Certain lighting equipment, building energy management systems, information and communications systems, heat and electricity systems, process and heating ventilation and air-conditioning,

Plant and machinery

See the sections on income tax in relation to the definitions of plant and machinery. Plant is something used in the trade for carrying out the business. It does not include the stock, or something consumed in the trade It must have a function in relation to the business. It does not include the setting, such as the premises.

What constitutes machinery is usually relatively clear. It would include such things as computers and other equipment used in an office setting. In an industrial setting, it could include any mechanized elements.

Generally, there are no allowances for commercial premises in themselves. There are allowances for industrial buildings.

Passenger vehicles

The capital allowances on vehicles have long been restricted, where the vehicle exceeds a certain value. Broadly where the value exceeds €24,000, allowances are limited to this sum. Since 2008the vehicle’s emissions are also taken into account would a view to incentivizing relatively more environmentally friendly vehicles.

There are a number of emission bands based on the CO2 emissions category of the vehicle. After an initial phasing out vehicles in lesser environmentally friendly categories are not entitled to capital allowances at all. Allowances are granted for vehicles in category A and B at €24,000 regardless of cost. In category C there are restrictions to 50% of cost or €12,000 if lower

If they are disposed of, the balancing allowance or balancing charge applies to the proportion of the price that the qualifying amount bears to the actual purchase price.

Leased assets

Capital allowances are available on leased assets.  The allowance may be available to the lessor or lessee.  The entitlement to the allowance lies with the party who bears the burden of wear and tear.  This is the person who suffers the economic loss due to the asset wearing out. It will depend on where the repair and maintenance obligations lie under the lease of the plant or equipment.

Lessors who bear the burden of wear and tear, may claim capital allowances. There are certain restrictions designed to limit a formerly common practice by which financial institutions leased equipment and claimed capital allowances against their trading income.

Companies with relatively little corporation tax liability could pass capital allowances to financial institutions, who had liability to corporation tax at the then higher rates. Under the restrictions, leasing is treated as a separate trade and the allowances are effectively ring fenced to leasing income.  There are certain limited exceptions by way of incentive schemes which are subject to conditions.

Certain leasing is treated similarly to credit finance. A finance lease is one that transfers the risks and benefits of ownership to the lessee. There is an initial period in which market type payments are made. Thereafter, in the residual period, much lower sums are paid.

In accordance with the economic reality, the lessee may claim capital allowances subject to conditions. Both the lessor and lessee must consent. The lessee must use the asset for the purpose of its business. It must bear the burden of wear and tear and be obliged to maintain it. Allowances cannot exceed the finance lease payment amounts. Lease payments related to capital are not allowed as expenses of the trade.

Certain Intangible assets

The Finance Act 2014 provides special capital allowances in respect of specified intangible assets.  These are deemed to be plant and machinery. The company may claim allowances of either 7% or the rate which matches the actual write down rates in the accounts.  A balancing charge does not arise if they are disposed of after five years.

Where the asset is acquired by a connected company, a balancing charge will not apply if the acquirer claims allowances on the expenditure. The 2014 Act provides that where a connected person acquires a specified intangible asset after five years, it is not restricted in claiming allowances.  The capital expenditure is deemed to be the amount equal to the tax written down value at acquisition. Specified intangible assets include trademarks, know-how and  customer lists.

Finance Act 2017 provides a cap of 80 percent on the total amount of capital allowances and related interest expenses which may be offset in an accounting period against trading income of a trade in which intangible assets were used. This applies to expenditure incurred after 11th October 2017.

Grant of allowances

Capital allowances are treated as an expense in calculating taxable income, which differs to how such allowances are granted to individuals. Equally balancing charges (recouping excess allowances) where the sale price is greater than the written down value is treated as trading income. The different treatment means that losses effectively include the capital allowance and need not be treated separately.

Capital allowances are granted to trading business in respect of assets purchased the purpose of the trade. The asset must be owned by the company concerned and being use in the trade concerned at the end of the accounting period. With the accounting period is less than 12 months proportion of the relevant allowance is allowed.

Capital allowances are granted on the cost of the plant and machinery together with other ancillary charges to bring it into operation. This includes delivery and installation.

If the plant or equipment is not in use in the relevant year, no allowance is granted but there is a notional write-down for the purpose of the calculation of future allowances, again in the business. The allowance cannot be postponed and accordingly non-use of the asset in that period means that that particular year’s allowance is no longer available.

Conditions apply. The plant or machinery must be used by the company in the relevant trade since acquisition. Allowances must have been claimed in the relevant years.

Renewal and reinstatement of plant and machinery itself qualifies for capital allowances. Grants which were formerly commonly made, in respect of plant and machinery are deducted from the cost. If they become repayable, for example for breach of condition they are added back to the cost.

Amount Allowed

Capital allowances for plant and machinery is allowed at 12.5% per annum on a straight-line basis. The same amount is written down each year over an eight year period. This in effect requires that a separate memorandum or note is required in respect of each item of qualifying capital allowances.

Capital allowances for energy-efficient equipment is allowed at 100%. There are minimum expenditure requirements. The equipment must fall into one of a number of categories and meet the requisite energy-efficient standards.

Passenger cars used as taxis or for hire qualify for a 40% allowance. They must be used at least 75% in the business in the relevant period.

Balancing Allowances and Charges

Balancing allowances and charges apply in the same manner as for individuals and partnerships.  An additional allowance or charge is given or made so that the total actual allowance granted, reflects the actual cost.  They will arise where there is a difference between the tax written down value and the sale price, insurance compensation or salvage value. Unlike the position with industrial buildings, the allowance or charge can arise after the asset is fully written down (usually year eight)

Where excess allowances have been given, they are taken back by way of a balancing charge for the excess. Where insufficient allowances have been given, there is a further balancing allowance. Balancing charges cannot exceed the allowances granted. Where the allowance was notional because the asset was not, for example, in use in the relevant year, it is ignored in the calculation of the balancing allowance or balancing charge.

Balancing allowances for charges may arise if the

  • Plant and machinery cease to be owned and used by the trader for the purpose of the trade (sold or scrapped)
  • The trade is permanently discontinued

Balancing charges do not apply in respect of plant and machinery for a sale price of less than €2,000.  The sale must be at arm’s length. This limit applies to each item separately.

Roll on Options

As with income tax, there is an option to roll the balancing charge into a replacement item.  The cost of the item is deemed reduced by the balancing charge, so that the charge is effectively spread over the life of the replacement asset.

It is also possible to elect where a trade is transferred in the course of a business reconstruction reorganisation or sale, that plant and machinery will be taken at tax written down value. The consent of both parties is required. The effect is that there is no balancing allowance or charge but that the successor steps into the shoes of the transferor.

Succession to Trade

Where another entity succeeds to a trade, there would y be a cessation and prospective balancing charge or allowance, However, the transferee/successor may take the tax written down value as adjusted above. If there is a transfer without sale, it may be deemed to take place at market price.

Where the transfers to connected entities persons a joint election may be made to take the asset at its tax written down value in certain circumstances. Where the trader is permanently discontinued, and the asset is either retained or sold at less than market value or gifted then the transfer is deemed to take place at market value. Under certain circumstances it may be taken at tax written down value if it continues in use in a trade.


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