Introduction Capital Allowances Depreciation specifically disallowed Capital allowances available on Plant and Machinery instead Capital allowances allows a deduction over a number of year for the net cost of an asset to a business

Introduction Capital Allowances Available for sole traders, partnerships and companies Main capital allowances are: Wear and Tear allowance Balancing Allowance/Charge

Introduction Capital Allowances For a sole trader, capital allowances are deducted from tax adjusted Case I or II profits Calculated and claimed by reference to tax years Rate is 12.5% per year straight line (with some exceptions) Examples

Plant Capital Allowances Not defined in law Case law Asset must be functional in the operation of the business as opposed to merely representing the setting in which the business is carried on. Includes fixtures and fittings, motor vehicles, office equipment, machinery

Requirements to claim capital allowances The qualifying asset must be owned The qualifying asset must be in use for the purposes of the business on the last day of the basis period Example

Computational rules Capital Allowances 12.5% straight line basis (Written off over 8 years) Annual allowance – full years allowance given when the requirements are met even if the asset is only in use for a short period at the end of the year The only time a full years allowance is not given is when there is a short basis period (less than 12 months) Examples

Calculating TWDV Capital Allowances Tax Written Down Value Required: Original cost of the asset Date of purchase and first use Accounting end date

Assets used for Business and Private purposes Capital Allowances Assets used for Business and Private purposes Only the business portion of the wear and tear allowances is allowable as a deduction However, full annual allowances is used in calculating TWDV Examples; cars, laptops, phones

Motor Vehicles Capital Allowances Restrictions apply to the amount that will qualify for capital allowances Two sets of rules: For cars purchased before 1 July 2008 For cars purchased on/after 1 July 2008

Capital Allowances Motor Vehicles Prior to 1 July 2008 the limits placed on the amount that will qualify for capital allowances depends on when the car was purchased: Cars purchased in basis period ending between 1 January 2002 and 31 December 2005 - €22,000 Cars purchased in basis period ending between 1 January 2006 and 31 December 2006 - €23,000 Cars purchased in basis period ending between 1 January 2007 and 31 June 2008 - €24,000

Motor Vehicles Capital Allowances From 1 July 2008 the limits placed on the amount that will qualify for capital allowances depends on carbon emissions levels of the car: Category A, B and C have a qualifying cost of €24,000 regardless of the cost of the car Category D and E cars have a qualifying cost of 50% of the cost of the car up to a maximum of €12,000 Category F and G cars do not qualify for capital allowances

Motor Vehicles – Taxis and short-term hire Capital Allowances Motor Vehicles – Taxis and short-term hire Wear and Tear allowance is calculated at 40% of full cost with no limit Reducing balance applies

Qualifying cost and VAT Capital Allowances Qualifying cost and VAT Recoverable VAT is excluded from the qualifying cost for capital allowances VAT is recoverable if the trader is VAT registered and the purchase qualifies for a VAT input credit Non-recoverable VAT is included in the qualifying cost

Government capital grants Capital Allowances Government capital grants The qualifying cost for capital allowances excludes the amount of capital grants receivable in respect of the asset

Balancing allowances/charges Capital Allowances Balancing allowances/charges Mechanism to ensure that the capital allowances claimed on an asset equals the net cash cost of the asset to the business A balancing allowance arises when the sales proceeds are less than the remaining unclaimed capital allowances A balancing charge arises when the proceeds are more the remaining unclaimed capital allowances

Events triggering balancing allowances/charges Capital Allowances Events triggering balancing allowances/charges Sale or transfer of ownership of the asset Asset permanently ceases to be used for purposes of the trade A permanent cessation of trade Assets transferred to a company on incorporation of a previously unincorporated business

Exemption from balancing charge Capital Allowances Exemption from balancing charge Where sales proceeds received are less than €2,000 a balancing charge will not arise Does not apply when disposal is between connected parties A balancing allowance can still arise however

Limitation of a balancing charge Capital Allowances Limitation of a balancing charge A balancing charge is a clawback of excess capital allowances claimed A balancing charge cannot exceed total capital allowances claimed in respect of the asset

Replacement Option Capital Allowances Where plant and machinery is disposed of and replaced with similar equipment any balancing charge on the disposed equipment can be deferred Cost of new equipment is reduced by the balancing charge Replacement equipment must be purchased in the same basis period as the old equipment was disposed

Balancing Allowance/Charge on Motor Vehicles Capital Allowances Balancing Allowance/Charge on Motor Vehicles Restrictions are placed on the qualifying cost of motor vehicles based on the emissions of the car When a car is disposed it is necessary to adjust the sales proceeds in the balancing calculation to reflect the restriction on the capital allowances available Sales proceeds * specified amount/actual cost of the car

Capital Allowances in a commencement Where the basis period is less than 12 months the annual wear & tear is proportionately reduced Where two periods overlap, the common period shall be deemed to fall in the first basis period only Where there is an interval between the end of the basis period for one year of assessment and the next year of assessment, the interval shall be deemed to be part of the second basis period

Capital Allowances in a cessation However, where there is an interval between the basis period for the penultimate and final years of assessment, the interval shall be deemed to be part of the penultimate basis period. This will not apply where the penultimate year is revised to actual profits.