Depreciation Calculator
Calculate asset depreciation using straight-line or reducing balance methods with a year-by-year schedule.
Source: GOV.UK – Capital Allowances
By Konstantin Iakovlev · Founder, Calks.uk
Last updated: · Verified against HMRC and GOV.UK 2026/27 rates
Annual Depreciation
£1,800.00
| Year | Depreciation | Book Value |
|---|---|---|
| 0 | — | £10,000.00 |
| 1 | £1,800.00 | £8,200.00 |
| 2 | £1,800.00 | £6,400.00 |
| 3 | £1,800.00 | £4,600.00 |
| 4 | £1,800.00 | £2,800.00 |
| 5 | £1,800.00 | £1,000.00 |
Disclaimer
This calculator is provided for informational purposes only and should not be considered as financial or tax advice. All calculations are performed locally in your browser — no personal data is collected or sent to our servers. Rates and thresholds are sourced from HMRC and GOV.UK and are updated for the current tax year. Always verify results with HMRC or consult a qualified professional before making financial decisions.
How It Works
Depreciation systematically allocates the cost of a tangible asset over its useful economic life, reflecting the consumption of its value. Straight-line depreciation uses the formula: Annual charge = (Original cost − Estimated residual value) ÷ Useful life in years. This produces an equal expense each year and is the most common method for UK financial reporting under FRS 102. The net book value (NBV) decreases by the same fixed amount annually until it reaches the residual value.
Reducing-balance (diminishing-balance) depreciation applies a fixed percentage rate to the NBV at the start of each period. The formula is: Annual charge = NBV at start of year × Depreciation rate. This front-loads higher charges in the early years when the asset is most productive, tapering off as the NBV shrinks. To calculate the rate needed to reach a target residual value, use: Rate = 1 − (Residual ÷ Cost)^(1/n), where n is the asset's life in years.
Depreciation is a non-cash accounting entry—it does not directly represent tax relief. For tax purposes, UK businesses claim capital allowances instead, which follow different rules and rates. However, depreciation affects reported profit, balance sheet values, and financial ratios. Companies must disclose their depreciation policies in the notes to accounts. Common useful lives used in practice: computers 3–5 years, vehicles 4–8 years, furniture 5–10 years, buildings 25–50 years.
Straight-line depreciation. Depreciation per year = (cost − residual value) ÷ useful life. Sample: £20,000 vehicle, £2,000 residual after 5 years → (£20k − £2k) ÷ 5 = £3,600/year depreciation. Book value year-end: year 1 £16,400; year 2 £12,800; year 3 £9,200; year 4 £5,600; year 5 £2,000. Most common method for accounting. Used in UK financial statements per FRS 102 (small/medium) and IFRS (listed).
Reducing balance (declining balance) depreciation. Depreciation = book value × rate. Higher in early years, lower later — matches actual asset value loss (cars lose 15-25% in year 1!). Sample: £20,000 asset at 25% rate. Year 1: £5,000 (book value £15,000). Year 2: £3,750 (book £11,250). Year 3: £2,813. Doubles-declining: 2 × straight-line rate. Useful for assets that lose value quickly (cars, tech). UK HMRC capital allowances effectively use 18%/6% reducing balance for plant/machinery/cars.
UK Capital Allowances 2026. Annual Investment Allowance (AIA): 100% first-year deduction for plant & machinery up to £1,000,000/year (permanent since April 2023). Full Expensing (companies only): 100% first-year deduction for main rate assets, 50% for special rate (April 2023 onwards, permanent from April 2026). Cars: 18% main rate (CO2 up to 50g/km zero-emission); 6% special rate (above 50g/km). Cars CANNOT use AIA. Electric vehicles: 100% first-year allowance until April 2026.
Vehicle depreciation — UK realities. Average new car loses 15-25% value in year 1; 50-60% over 5 years (Cap HPI data). Premium luxury (BMW 7-series, Audi A8): often 65-75% loss over 5 years. Best retainers: Toyota Hilux, Land Rover Defender, Porsche 911 — 30-40% loss over 5 years. EVs in 2025: depreciation faster than petrol due to battery tech evolution (Tesla, Polestar, Audi e-tron all -50%+ over 3 years). Lease vs buy: leasing transfers depreciation risk to lessor — pay only for use, not residual value.
Tax vs accounting depreciation. Accounting depreciation (in P&L, follows useful life): smooths cost over years. Tax depreciation (capital allowances per HMRC rules): may differ significantly. Sample: £30,000 car. Accounting £6,000/year straight-line over 5 years. Tax: 18% reducing balance = £5,400 year 1, £4,428 year 2... Difference creates 'deferred tax' on balance sheet. UK Corporation Tax 25% (or 19% Small Profits Rate) applied to taxable profit, not accounting profit — capital allowances reduce tax bill, depreciation reduces accounting profit (added back for tax).
Straight-line vs reducing-balance on a £12,000 van
- Van cost: £12,000. Residual value: £2,000. Useful life: 5 years.
- Straight-line annual charge: (£12,000 − £2,000) ÷ 5 = £2,000 per year. NBV after year 1: £10,000.
- Reducing-balance rate to reach £2,000 in 5 years: 1 − (2,000/12,000)^(1/5) ≈ 30.1%.
- Year 1 reducing-balance charge: £12,000 × 30.1% = £3,612. NBV after year 1: £8,388.
- Year 2 reducing-balance charge: £8,388 × 30.1% = £2,525. NBV after year 2: £5,863.
Source: GOV.UK – Capital Allowances
Frequently Asked Questions
- What does the Depreciation Calculator do?
- Calculate asset depreciation using straight-line or reducing balance methods with a year-by-year schedule.
- Straight-line vs Reducing Balance — which to use?
- Straight-line (e.g. £10,000 ÷ 5 years = £2,000/year) is simpler and used for buildings, fittings, long-life assets. Reducing balance (apply % to remaining value each year) gives more depreciation in early years — used for vehicles, tech, equipment that loses value fast. UK GAAP and IFRS allow either, provided it reflects actual asset usage. For tax purposes, use HMRC's Capital Allowances (AIA, WDA) — separate from accounting depreciation.
- What's useful economic life for tax vs accounting?
- Accounting depreciation must reflect 'useful economic life' — typically 3-5 years for IT, 5-10 years for vehicles, 25-50 years for buildings, indefinite for land. HMRC capital allowances ignore your accounting policy: writing down allowance is 18%/year (main pool) or 6% (special rate pool: buildings, integral features, cars over 50g/km CO2). The Annual Investment Allowance (AIA) gives 100% relief on qualifying plant up to £1m/year — usually wiping out depreciation expense for SMEs.
- Do I need to depreciate everything?
- No. Below the de minimis threshold (~£100-£500 depending on policy), expense items immediately. Land doesn't depreciate. Goodwill is amortised under FRS 102 (UK GAAP) but not under IFRS (impairment-only). Software is depreciated over its useful life (typically 3-5 years). Repairs/maintenance are expensed; capital improvements are added to the asset and depreciated. Get your accountant's input — these classifications affect tax bills significantly.