Mazars

Topic: Have you considered the Accelerated Capital Allowance for your next energy efficient equipment purchase?

Energy is a critical input into the production and consumption patterns that support economic and social wellbeing. However, many forms of energy use contribute to the environmental and climate challenges societies face today. Taxation is a key tool by which governments can influence energy use to contain its environmental impacts – OECD ⁽¹⁾.

Having first been introduced in Finance Act 2008 and extended until the end of 2017, the Accelerated Capital Allowance (ACA) is a tax incentive which aims to encourage companies to invest in energy saving technology. In effect, the scheme allows businesses seeking to reduce energy costs by investing in energy efficient equipment to benefit through the tax incentive. With this in mind, it is important to note that the equipment must be included in the list of energy-efficient equipment approved by the Minister for Communications, Energy and Natural Resources in order to qualify under the scheme.

So what does this mean? Basically, the ACA allows companies to write off 100% of the purchase value of qualifying energy efficient equipment against their profit in the year of purchase ⁽²⁾. In comparison, the wear and tear allowances for machinery or plant, which are generally given over an eight year period at an annual rate of 12.5% of the capital expenditure incurred. However, this scheme is only available to companies which incur expenditure on approved energy-efficient equipment for use in their trade and the equipment must be owned by the company. Equipment that is leased, let or hired will not qualify for the allowance ⁽³⁾.

The ACA, as detailed in the Finance Act, covers 10 different equipment categories and 52 associated technologies, which can be found on the Sustainable Energy Authority of Ireland (SEAI) website ⁽⁴⁾. Fundamentally, the goal of the scheme is to encourage businesses to purchase plant and machinery that is highly energy efficient and thus make significant savings on energy costs and reduce carbon emissions. It is estimated that up to 85% of any company’s equipment procurement needs can be sourced through the ACA list of highly energy efficient products ⁽⁵⁾.

In summary, the ACA benefits a company by increasing its cash flow and by reducing both its Tax liability and energy costs. In parallel, this incentive allows a company to align to the SEAI’s mission to transform Ireland into a society based on sustainable energy structures, technologies and practices

References

• http://www.oecd.org/tax/taxing-energy-use-2015-9789264232334-en.htm [Accessed 6^th of September 2016].
• http://www.seai.ie/Your_Business/Accelerated_Capital_Allowance/About_the_ACA/ [Accessed 6th of September 2016].
• revenue.ie/en/about/foi/s16/income-tax-capital-gains-tax…/09-02-04.pdf [Accessed 6th of September 2016].
• http://www.seai.ie/Your_Business/Accelerated_Capital_Allowance/ACA_Categories_and_Criteria/ [Accessed 6th of September 2016].
• http://www.dccae.gov.ie/energy/en-ie/Pages/Legislation/Accelerated-Capital-Allowances.aspx# [Accessed 6th of September 2016].