1. 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

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

3. 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

4. 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

5. 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

6. 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

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

8. 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

9. 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

10. 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 and 31 December €22,000
Cars purchased in basis period ending between 1 January and 31 December €23,000
Cars purchased in basis period ending between 1 January and 31 June €24,000

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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.