When you buy an expensive item that will be used over time, from an accounting perspective you can't initially claim all of that expense straight away and have to capitalise it as an asset. The purpose of this is to allocate the cost of the expense over its useful life and match this expense with the periods the asset is being used. This allocation is called depreciation and is calculated monthly based on how long you think the asset will last.

What's included

The monthly reduction in value of your asset.

Luckily, Ember supports the straight line method of depreciation and take care of it in the background, so you don't have to make manual adjustments every month.

What's not included

Impairment of an asset.

Gain or loss on a sale of an asset.

How is it taxed?

Where you spend less than £1 million* on things like computers and office equipment, you can get tax relief on the full expense in the year you spend it. This is where accounting and tax treatments differ.

You cannot claim any relief on land and the core structure of a building (including doors). Cars will get tax relief based on their CO2 emissions.

*The rate is subject to change. Please check the most up to date Annual Investment Allowance here.

Tax tips

No tax relief arises on depreciation - you get capital allowances instead. But make sure you make full use of annual investment allowances and short life asset allowances when you do.

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