Business Tax – Accelerated Capital Allowances for EVs & Energy Efficient Equipment

  • By: Walter Dunphy ACCA
  • Date: April 10, 2022
  • Time to read: 3 min.

Are you upgrading your companies vehicles and equipment soon? The rising price of oil and gas is making the cost efficiency of traditional fossil fuel heavy vehicles less and less economical. In this blog post, we will highlight an incentive scheme that is available to Irish businesses to claim accelerated capital allowances for certain investments in energy-efficient equipment that is used in the business’s trade.

What does the Incentive Scheme offer?

A capital allowance allows a company to claim a tax-deductible expense for capital expenditure items such as machinery, motor vehicles, plant equipment. The cost of the capital item is traditionally spread over the following periods:

  • 12.5% (8 years) plant and machinery
  • 4% (25 years) industrial buildings

Under the Accelerated Capital Allowances for Energy-Efficient Equipment Scheme businesses that made eligible purchases will be able to claim 100% capital allowance in year one. The scheme is currently set to run until 31 December 2023.

The benefit of this scheme is that the business will be entitled to a large tax saving in year one as opposed to claiming relief over an 8 year time period.

For motor vehicles that fall under the category “Electric and Alternative Fuel Vehicles”, businesses can claim an accelerated allowance up to the lower of €24,000 and the cost of the vehicle. This is also provided the motor vehicle has carbon dioxide emissions levels of 141g/Km or less.

Who is eligible?

There are several conditions that must be met to be eligible for the scheme, it is open to both sole traders and limited companies.

  • The energy-efficient equipment must be new
  • The equipment needs to be actually owned by the company/business. Leased or hired equipment will not qualify.
  • The equipment needs to be used wholly and exclusively in the trade.
  • It must fall within the 10 classes of equipment/technology as set out under Schedule 4A TCA 1997 (Listed below)
  • Meet the corresponding minimum spend out for the class of equipment/technology
  • Excluded are businesses that are dealers or lessors of Motor Vehicles & Equipment

What types of equipment and vehicles are allowed?

CLASSMINIMUM VALUE €
Motor Vehicles €1,000
Lighting €3,000
Building Energy Management System €5,000
Information and Comm Tech €1,000
Heating and Electricity Provision €1,000
Process and Heating, Ventilation and Air-conditioning (HVAC) Control Systems €1,000
Electric and Alternative Fuel Vehicles €1,000
Refrigeration and Cooling Systems €1,000
Electro-mechanical Systems €1,000
Catering and Hospitality Equipment €1,000

If you would like to check out the information about a specific product, the Sustainable Energy Authority of Ireland (SEAI) has a detailed list of over 31,000 products which you can check out here.

How to claim the relief

You do not have to seek official approval to avail of the scheme, it is applied under a self-assessment basis. Once you have made the assessment that the business complies with the eligibility conditions, the allowance can be used in the accounting period in which the equipment is first used.

There are specific sections on the relevant tax returns (Form 11 / CT1) where your accountant can claim the allowance.

Year 1 Calculation Example

The key benefit of using this scheme for a business is that it will improve its cash flow in the short term.

Let’s look at a short example for a company called XYZ who has the choice of buying an Electric Vehicle or an equivalent Diesel engine both costing €30,000.

Company – XYZ Electric VehicleDiesel Vehicle
Trading Profits €120,000 €120,000
Capital Allowance (€24,000) 100% (€3,750) 12.5%
Taxable Profits €96,000 €116,250
Corporation Tax 12.% €12,000 €14,531.25
Year One Tax Saving €2,531.25

Disclaimer: This blog post is for informational and educational purposes only and should not be construed and financial advice.

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