Capital allowances are akin to a tax deductible expense and are available in respect of qualifying capital expenditure incurred on the provision of certain assets in use for the purposes of a trade or rental business. They effectively allow a taxpayer to write off the cost of an asset over a period of time.

What is capital allowance in tax?

The purpose of capital allowance is to give a relief for wear and tear of fixed assets for business. Capital allowances consist of an initial allowance and annual allowance. Initial allowance is fixed at the rate of 20% based on the original cost of the asset at the time when the capital expenditure is incurred.

Can you claim AIA and WDA?

Yes. Before the AIA was introduced, assets would be divided up into “pools” and then, on the balance of each pool, a Writing Down Allowance (WDA) would be given.

What can you claim AIA on?

Most assets purchased for business purposes can be claimed as qualifying expenses for AIA, with the primary categories as listed below:

  • Office equipment including computer hardware and certain types of software, and office furniture.
  • Parts of a building referred to as integral features.

What are capital allowances and who can claim them?

Capital allowances are generally granted in place of depreciation, which is not deductible. Capital allowances are deductions you can claim for wear and tear of qualifying fixed assets bought and used in your trade or business. Qualifying fixed assets include carpets, machinery and office equipment.

Can You claim depreciation capital allowance on taxes?

Depreciation accounted for in financial statements is not tax deductible. Capital allowance is given instead for assets that qualify for plant and machinery. Claiming capital allowance over a period of time is also known as “writing off the asset”.

Can you go back four years to claim capital allowances?

Depending on the facts and circumstances, you may be able to go back four years to amend your tax return to include the allowances that you should have claimed. I don’t have any information relating to the expenditure incurred.

How are capital allowances calculated in the Irish Republic?

With the exception of cars, HMRC advises that the business claim these assets under AIA rather than claiming as a writing down allowance, with only an 8% deduction rate, unless the AIA limit has already been reached. The Irish republic’s capital allowances are structured similarly to those in the U.K.