Depreciation spreads the cost of a long-term asset over the years it's used, rather than charging it all at once. This guide explains the common methods.
Published July 2026 · Updated July 2026
When a business buys a long-term asset like a machine or van, it wouldn't be fair to dump the whole cost into one year. Depreciation spreads that cost across the asset's useful life as an expense each period.
Straight-line spreads the cost evenly (same charge each year). Reducing-balance charges more in early years and less later. Either way, the asset's book value falls over time until it reaches its residual value.
No. Depreciation is an accounting expense; capital allowances are the tax relief HMRC gives, calculated by its own rules. Depreciation is added back and capital allowances used instead when working out tax.
No, it's a non-cash expense. The cash went out when you bought the asset; depreciation just spreads the cost in the accounts.
Source: Investopedia ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.