What is a Capital Allowance and How is it Calculated?
By OSK Contracting
Jun 7, 2006, 13:15

For accounting periods ending on or after 1 January 2001, the annual allowance is 20% on a straight line basis. Expenses are generally categorised as either Capital Expenses or Revenue Expenses. Revenue expenses include the annual running costs of your company. You incur a Capital Expense when you purchase some plant and machinery that you expect to use over a number of years. In this case you would not be entitled to claim the cost in full in the year it is incurred. Instead you would claim an allowance over five years or the life of the asset. Whichever is shorter.

Example
In your accounting period end on 31 March 2001, and during that year you purchased computer equipment costing €8,000, you would be able to claim an annual allowance of €1,600 in the year of purchase and the next four years.
If you sell or dispose of the computer during the five year period you would be able to claim a “balancing allowance” to ensure that you obtain full relief for the cost over the life of the asset.

If the sale proceeds are greater than the written down value, then a ‘balancing charge’ arises. This will claw back any allowances previously given.

OSK Contracting provide quality and professional business advice to indigenous Irish businesses. Our clients include government bodies; multi-national groups; PLCs; SMEs and sole traders but we specialise in progressive indigenous Irish family owned businesses.

Reprinted with kind permission by OSK Contracting www.osk.ie

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