Accelerated capital allowance (ACA)

Definition

The accelerated capital allowance (ACA) scheme is a tax incentive designed to encourage businesses to invest in energy-efficient equipment and technologies. 

What is accelerated capital allowance?

The accelerated capital allowance scheme is a valuable tool for businesses looking to invest in energy efficiency. It allows businesses to claim a tax deduction for the cost of qualifying energy-efficient assets at an accelerated rate.

Under the ACA scheme, businesses can write off the entire cost of eligible assets in the year they are purchased and installed, rather than spreading the deduction over several years. This immediate deduction provides a significant upfront tax benefit, improving cash flow and reducing the overall cost of investment in energy-efficient technology.

Eligible assets typically include equipment and technologies that meet specific energy efficiency criteria set by the Irish government. These can range from lighting systems and heating controls to more advanced machinery that reduces energy consumption. The ACA is designed to support businesses in upgrading their operations to be more environmentally friendly and energy-efficient, thereby contributing to Ireland’s sustainability goals.

To benefit from the ACA, businesses must make sure that their investments meet the technical and environmental standards outlined by the scheme. They also need to retain appropriate documentation and evidence to support their claims.

Example of accelerated capital allowance

A manufacturing company in Cork invests €100,000 in new, energy-efficient machinery that meets the criteria for the accelerated capital allowance scheme. Instead of spreading the cost of the machinery over several years, the company can deduct the entire €100,000 expense in the current tax year.

This immediate deduction reduces the company’s taxable income for the year, leading to substantial tax savings. The improved cash flow from the tax benefit helps the company offset the initial cost of the machinery and invest further in its operations.