It's important to distinguish between depreciation which is an accounting concept and writing down allowances which is a revenue concept.
For example, from an accounting point of view, you might choose to depreciate a computer over three years, but I think that the Revenue only allows you to write it off at 15% per year, reducing balance.
When doing your tax return, you add back the depreciation when calculating the taxable profits but do a separate calculation for writing down allowances.
Brendan
From IT 48
What is Capital Expenditure?
Expenditure is regarded as “capital” if it has been spent on
acquiring or altering assets, which are of lasting use in the
business, for example, the purchase or alteration of business
premises, or the cost of plant, machinery or vehicles. You
cannot deduct the cost of this type of expenditure in arriving at
your taxable profit.
You can, however, claim Capital Allowances on capital
expenditure incurred on items such as office equipment,
business plant and machinery, vehicles and certain buildings (for
example, industrial buildings). Capital Allowances take account
of the wear and tear on these items and are deducted from your
profit figure before you are taxed on it.
How are Capital Allowances calculated?
Wear and Tear Capital Allowances on Plant and Machinery
(including motor vehicles) is calculated on a straight-line basis at
a percentage of the net cost. The net cost is the cost less any
grants and any VAT, which can be reclaimed.
Depending on when you purchased the item of plant or
machinery,
the rate of depreciation may vary as follows:
Expenditure incurred on or after 4 December 2002 Wear
and Tear is calculated at 12.5% of the net cost,
Expenditure incurred between 1 January 2001 and
3 December 2002 Wear and Tear is calculated at 20% of
the net cost,
For plant and machinery purchased prior to and including
31 December 2000 Wear and Tear is calculated on the
basis of 15% for the first six years and 10% for the
seventh year.
Example of Capital Allowances
Net cost of plant and machinery purchased on 1 January 2006 is
€30,000 (including €26,000 for a motor vehicle).
Wear and Tear computation
Cost €27,000
Wear and Tear
2006 to 2013 (12.5% each year) = €3,375
The full €27,000 is allowed against your profits over eight years.
For private motor vehicles, Wear and Tear is calculated at a rate
of 12.5% per annum of the net cost. The net cost, however,
is restricted to £24,000 for all cars. The Capital Allowances
as calculated will be apportioned to exclude any private use.
The restriction by reference to cost of £24,000 does not apply
to a car in use as a taxi or in a car hire business. The annual rates
of Wear and Tear on such cars is 40% on a reducing balance
basis.
Further information on calculating Capital Allowances can be
obtained in Revenue’s “Guide to Completing Tax Returns”
which is available on Revenue’s website
www.revenue.ie,
from Revenue’s Forms and Leaflets Service by phoning
LoCall 1890 306 706, or from your local Revenue office.
