In computing tax due on your business profits, you do not get any allowance for depreciation of business assets. Instead, you get a capital allowance over several chargeable periods until the cost of the asset has been fully allowed.

Capital allowances are computed exclusive of grants (s 317) and VAT (s 319).

Machinery or plant

Expenditure on machinery or plant used in your business is given an annual wear and tear allowance of 12.5% (s 284). A similar allowance is given for expenditure on software (s 291).

If you dispose of an item of machinery or plant on which capital allowances were claimed, and the disposal results in an underclaim (or overclaim) of allowances, you may be due a balancing allowance (or subject to a balancing charge) (s 288).

Cars

A car (new or secondhand) costing over €24,000 is given an annual 12.5% wear and tear allowance as if the car’s purchase price were €24,000 (s 373).

The capital allowances and leasing deductions of cars bought or leased since 1 July 2008 are based on the level of carbon emissions (see Benefit in Kind, above). Cars with emissions above 190g/km get no allowance (s 380K).

A taxi or short-term hire car is given an unrestricted write off of the purchase price at 40% per annum on a reducing balance basis (s 286).

Restrictions

If you carry on a trade of leasing machinery or plant, you may only set off the related capital allowances against income from that trade. This is relaxed if not less than 90% of your activity consists of leasing (s 403).

Industrial buildings

If you purchase an industrial building for your business, you may be due:

(a) an industrial building annual allowance (also known as a writing down allowance) (s 272),

(b) an industrial building accelerated writing down allowance (also known as “free depreciation”) (s 273), or

(c) an industrial building (initial) allowance (s 271).

If the disposal of an industrial building on which capital allowances were claimed results in an underclaim (or overclaim), a balancing allowance (or charge) may arise (s 274).

Industrial buildings annual allowance may be claimed at the following rates:

(a) 15%, in respect of expenditure on:

(i) palliative care units (hospices),

(ii) private convalescent facilities,

(iii) private hospitals,

(iv) registered nursing homes,

(v) sports injury clinics.

(b) 10%, in respect of expenditure on:

(i) buildings for intensive livestock production,

(ii) market gardening structures.

(c) 4%, in respect of expenditure on:

(i) airport buildings, structures, runways, aprons,

(ii) camp/caravan site buildings and structures,

(iii) factories, mills, dock undertakings,

(iv) mineral analysis laboratories,

(v) hotels.

Unused accelerated allowances carried forward beyond the tax life of the building will be lost. However, if the tax life of the building ends before 31 December 2014, only capital allowances unused as at 31 December 2014 will be lost.

High Earners’ Restriction

Where your income exceeds €125,000, the maximum reliefs and exemptions you can claim is the higher of:

(a) €80,000, and

(b) 20% of your total income.

Farm buildings, structures, milk quotas

If you are a farmer, expenditure on farm buildings may qualify for a farm building allowance of 15% in each of the first six years and 10% in the seventh year (s 658).

Expenditure on the purchase of a milk quota may be written off over a seven year period (s 669B).

Patent rights

An annual allowance of one-seventeenth of the expenditure is given for capital expenditure on patent rights (s 755).

More

Introduction to Income Tax

Income Tax rates

Benefit in Kind

Income Tax exemptions

Income Tax schedules

Income Tax reliefs

Handling losses

> Double taxation

Self Assessment

Revenue Powers

Withholding taxes

Penalties

Appeals