Depreciation methods

Straight line or reducing balance. Two ways to spread the same cost.

What it means

Straight line charges an equal amount each year. Reducing balance charges a percentage of the remaining value, so more in early years.

Why it matters

The method affects reported profit in each year, though not over the asset's life. It should reflect how the asset actually loses value.

What it looks like in practice

Vehicles and technology lose value fastest early, which suits reducing balance. Fixtures and fit-out often suit straight line.\n\nSet a policy per asset class and apply it consistently.

What to watch out for

Depreciation has no effect on the tax bill — capital allowances do that. Changing the method to manage tax achieves nothing.

Where to get proper advice

Your accountant.