A company carries on a trade of manufacturing furniture and makes up its accounts to 31 December each year. In May 2016 the company bought a new machine which cost €25,000 excluding Value-Added Tax (VAT). The machine was in use in the trade at 31 December 2016.
The company can claim an allowance, known as a wear and tear allowance, at a rate of 12.5% of the net cost of the machine for the 12 month accounting period ending 31 December 2016. The allowance of €3,125 (€25,0000 @ 12.5%) is treated as a trading expense of the company in the same way as other trading expenses (for example, wages) in calculating the company’s profit for tax purposes.
The company can claim a wear and tear allowance of €3,125 for the following seven accounting periods, provided the machine is in use for the trade at the end of the accounting period in question.
The allowance may not be given in full if the accounting period is less than 12 months, or if the machine is used for a purpose other than the trade.