Depreciation is a non-cash expense and applies to fixed assets. There are two ways to think of this:
- Accounting for the normal wear-and-tear of the fixed asset as a business expense each year - it reduces the value (and future selling price); and
- Claiming the cost of the fixed asset over a number of years (minor assets can be fully claimed in the year it's purchased).
Inland Revenue provides accountants with the maximum depreciation rates claimable for tax purposes.
This spreads the cost of a fixed asset over its useful life. It's an expense in the Profit and Loss Account which means it reduces your tax bill.