Capital Allowances for energy efficient equipment

Section 285A TCA 1997 provides for accelerated capital allowances in respect of expenditure incurred by companies on certain energy efficient equipment bought for their businesses. Capital allowances of 100% are available in the year in which expenditure on qualifying equipment is incurred. This incentive runs until 31 December 2014, as a result of which it is advisable that any expenditure on energy efficient equipment be incurred before this date. That being said it is hoped that the incentive might be extended past this date.

The advantage of this incentive, as outlined above, is that when money is spent on eligible energy efficient capital equipment, the company can deduct the full cost of this equipment from their profits in the year of purchase, i.e. the taxable profit in year one is reduced by the full cost of the equipment. With the normal Capital Allowances tax structure, when money is spent on capital equipment companies can only deduct the cost of this equipment from their profits proportionally over a period of 8 years, i.e. the annual taxable profit is only reduced by 1/8 of the total equipment cost.

It is important to note, that these accelerated allowances are only available to companies and not individuals. The equipment must be owned by the company. Equipment that is leased, let or hired will not qualify for the allowance. Also, the increased capital allowances for energy efficient equipment do not apply unless the expenditure in the class of technology in question is equal to or above the limit specified in specified in legislation for that class. The limits range from €1,000 to €5,000.

This incentive will only apply to the purchase of qualifying equipment. The Sustainable Energy Authority of Ireland (SEAI) is responsible for maintaining lists of equipment eligible for accelerated allowances. These lists are published in legislation on a quarterly basis and a searchable database of eligible products is available at www.seai.ie.

 While approved energy-efficient equipment might not be regarded as machinery or plant in its own right for the purposes of wear and tear allowances, for example lighting, any products that have been approved and listed are deemed to be machinery or plant and are therefore eligible for the Accelerated allowances. The scheme currently covers the following categories of equipment; Building Energy Management Systems, Lighting, Motors and Drives, Information and Communications Technology, Heating and Electricity Provision, Process and Heating, Ventilation and Air-conditioning (HVAC) Control Systems, Electric and Alternative Fuel Vehicles, Refrigeration and cooling systems, Electro-mechanical systems and catering and hospitality equipment.

As can be seen from this list, the accelerated allowances are available to virtually all industry sectors and all companies should now consider whether they can benefit from the available accelerated allowances.

 If you wish to discuss the availability of these allowances further, please do not hesitate to contact RDA Accountants’ Tax manager George Skelton CTA, ACA, at our Wexford office for further assistance.