Capital allowances are tax reliefs that allow Irish companies to write off the cost of qualifying capital assets like machinery, vehicles, and equipment against their taxable profits, functioning as accelerated depreciation for corporation tax purposes.
Capital Allowances are tax deductions that allow your Irish company to reduce its taxable profits by claiming relief on the cost of certain capital assets. Instead of claiming accounting depreciation, which does not reduce your corporation tax bill, capital allowances provide genuine tax savings by letting you write off the cost of qualifying assets like computers, office equipment, and company vehicles.
Revenue provides these allowances to recognise that capital assets lose value over time through wear and tear. The relief is calculated using specific rates and pools, ensuring businesses get fair tax treatment for investments that help generate profits. For startups and small companies, understanding capital allowances is essential for cash flow management, as the tax savings directly improve your bottom line.
Capital allowances form part of your corporation tax computation, filed after your financial year end. They apply to a wide range of assets used in your trade, but strict rules determine what qualifies and how much you can claim each year.
Most capital allowances in Ireland operate through a "pooling" system where qualifying assets are grouped together. You add the cost of new purchases to the pool and deduct the allowance rate, typically 12.5% on a reducing balance basis for plant and machinery. Any remaining balance carries forward to the next year, allowing ongoing relief until the pool is exhausted.
For example, if you buy €20,000 of computers, you add this to your machinery pool. At 12.5%, you claim €2,500 in the first year, leaving €17,500 for future claims. This system encourages investment whilst spreading the tax benefit over the asset's useful life.
Qualifying assets include plant and machinery such as computers, printers, furniture, and manufacturing equipment. Company cars qualify based on CO2 emissions, with electric vehicles receiving accelerated 100% first-year allowances to promote green investments. Buildings and land generally do not qualify, though certain industrial structures may attract industrial buildings allowances.
Integral features of buildings, like electrical systems or heating, can qualify separately. Always check Revenue guidelines, as fixtures and fittings in leased premises may require landlord agreement before claiming.
Yes, laptops, tablets, and most IT equipment qualify as plant and machinery, allowing your startup to claim capital allowances from day one. Off-the-shelf software often qualifies too, whilst custom development may be treated as revenue expenditure fully deductible in the year incurred.
This relief is particularly valuable for tech founders investing heavily in hardware during early growth stages. Keep detailed invoices, as Revenue may scrutinise claims during compliance checks.
Accounting depreciation reduces your reported profits in financial statements but provides no tax benefit. Capital allowances, governed by tax law, directly reduce taxable income for corporation tax purposes. Your accountant adjusts the tax computation to replace depreciation with allowances, often resulting in lower tax payable.
This difference matters during due diligence for investors reviewing your tax position. Proper claims ensure your effective tax rate reflects genuine business investments.
Ireland offers accelerated capital allowances for energy-efficient plant and machinery, allowing up to 50% first-year deduction instead of the standard 12.5%. Qualifying items include low-emission vehicles and certain manufacturing equipment meeting strict efficiency standards.
These incentives align with national climate goals whilst providing immediate cash flow benefits. Check Revenue's list of approved assets annually, as criteria evolve.
Yes, car allowances depend on CO2 emissions. Low-emission cars get higher rates, whilst high-emission petrol or diesel vehicles attract reduced percentages. Short-term hire cars may qualify fully, but private use adjustments apply similar to benefit in kind calculations.
Electric vehicles benefit from 100% first-year allowances until 2025, making them tax-efficient choices for business fleets.
