By Bruce Stanley, 18th June 2010
New Company – Bright Future
When a new business begins it is important to start as they mean to continue. The ethics of the business from day one should match the long term goals and principles of the owners. An area of growing importance over the recent past has been the drive towards a greener environmentally friendly world. It is good to know that as well as the moral benefit of being green, there are tax benefits available.
Accelerated Capital Allowances
The introduction of an Accelerated Capital Allowances (ACA) scheme in 2008 is an example of the initiatives that Revenue are using to promote a greener Ireland. When a company buys assets which it will be using long term, such as motor vehicles, computers, etc they are normally allowed a tax deduction over a period of 8 years, claiming 12.5% of the cost each year. However, with the ACA scheme, when a company invests in an approved environmentally friendly asset the company is allowed to claim the full cost of the asset in year 1.
The benefit of this allowance should not be underestimated. For example, if a company makes €50,000 in year one and buys an unapproved asset for €80,000 they will be taxed on €40,000 (€50,000 less 12.5% of €80,000). Now, if the company invested €80,000 in an approved asset they would not pay any tax in year 1 and be able to carry forward €30,000 of the allowance to offset against the year 2 profits.
This is not just about saving your tax bill. Long term the specified assets will save you money as they reduce your energy costs. The list of approved assets is managed by and available from the Sustainable Energy Authority of Ireland. There are ten categories of equipment that are eligible for the scheme. They are
- Building Energy Management Systems (BEMS)
- Motors & Drivers
- Information and Communications Technology (ICT)
- Heating & Electricity Provision
- Process and Heating, Ventilation and Air-conditioning (HVAC) Control Systems
- Electric and Alternative Fuel Vehicles
- Catering and Hospitality
- Electromechanical Systems
- Refrigeration and Cooling
Motor Vehicles and CO2 Emissions
As many readers will be aware VRT on Motor Vehicles used was historically based on the engine size, but this changed from 1st July 2008. Since then VRT is calculated with reference to CO2 emissions rather than the size of the engine.
In addition to the VRT change from 1st July, 2008 Revenue changed the rules relating to tax deductions for cars purchased for use in a company’s trade. Until 30th June 2008 when a car was purchased for use in a trade capital allowances were claimed on the lower of the cost of the vehicle or €24,000, irrespective of the make, model or emissions.
Where a car is purchased for use in a trade after 1st July 2008 the amount that capital allowances can be claimed on relates to the CO2 Emissions. The emissions levels are broken down into three groups and can be broken down as follows:
(Grams per km)
A, B & C
0 – 155
D & E
156 – 190
50% of €24,000 or, if lower, 50% of actual cost
A car in group one will qualify for capital allowances on €24,000 even if this is greater than the actual cost of the car. So a company that purchases a car ranked in Group 1 for €10,000 will receive tax deductions for €24,000.
A €10,000 car from group 2 would receive capital allowances on €5,000 being 50% of the €10,000. A group 2 car costing €50,000 would only receive capital allowances on €12,000, whilst a car in group 3 would not receive any capital allowances regardless of the cost.
Commercial Advantages of Going Green
In addition to the tax advantages of environmentally friendly asset investment, the long term cost reduction and marketability of being a green company should not be overlooked. Reducing energy consumption reduces your costs long term and the initial outlet for the assets can be aided by the tax benefits.
Perhaps, most importantly, consumers are becoming increasingly aware of the need to look after the environment and their role in that process. Being able to market your company as environmentally conscious may give you the edge over a less eco-friendly competitor. Studies in 2008 showed that 20% of consumers have fully developed principles about shopping from green sources, whilst the majority accepted that sustainable issues were important and were prepared to act. Only around 10% of people were indifferent.
Bruce Stanley ACA AITI QFA is Tax Manager, Byrne Curtin Kelly Accountants, based in Dublin. Bruce can be contacted on 01 6765333 or see www.bck.ie
Disclaimer This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change.