This is general information, not tax or legal advice. Rules and rates change, so check GOV.UK or ask an accountant.
When you buy a laptop, van or machine, it will be useful for years. Depreciation spreads its cost over those years instead of charging it all in one month, so your profit shows a fairer picture.
Straight-line
The same amount each year. Example: a £3,000 machine with no value left after 5 years costs £600 a year, or £50 a month.
Reducing balance
A fixed percentage of the remaining value each year, so charges are larger early. Example: 20% on £3,000 is £600 in year one, then 20% of £2,400, which is £480, in year two.
Accounting depreciation vs capital allowances
Depreciation is an accounting figure. For tax, HMRC does not allow depreciation as a deduction. It gives capital allowances instead, which follow their own rules. Your accountant adjusts for the difference. See GOV.UK on capital allowances.
What to track
- Description, date bought and cost.
- Useful life and method.
- Accumulated depreciation and current value.
- Disposals, and any gain or loss.
What to capitalise
Low-cost items are usually expensed straight away. Set a sensible threshold, such as items above a few hundred pounds, and be consistent.
How AvrioBooks helps
The fixed asset register records assets and runs depreciation, so reports show each asset’s current value. See the fixed asset register and the guide fixed assets.
Frequently asked questions
What is depreciation?
Spreading the cost of an asset over the years you expect to use it.
Is depreciation tax-deductible?
No. HMRC gives capital allowances instead, which follow their own rules.
What is straight-line depreciation?
The same charge each year, for example £600 a year on a £3,000 asset over five years.
Does AvrioBooks have a fixed asset register?
Yes. It records assets and depreciation.
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