calculate depreciation

Depreciation Rates: How to Calculate UK Depreciation?

If you are looking for a guide based on how to calculate depreciation, this article will assist you with having the opportunity to hold with calculating UK depreciation for private companies. Depreciation is a term that incorporates other accounting ideas, for example,

  • Fixed Assets
  • Depreciation rates
  • Depreciation strategies
  • Business productivity


Fixed Assets, Depreciation rates, Depreciation strategies, Business productivity


How you need to calculate depreciation relies upon the business, what has been purchased, its expense, and how it was bought.


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UK Depreciation and Depreciation:

At the point when business purchases fixed resources, it will utilize them for various years. So that implies, in accounting, there should be an approach to discount the expense of the resource over the number of years it’s utilized.


What is Depreciation?

When you purchase things in your business the manner in which you need to deal with them for accounting and duties relies upon what you have purchased.

For instance, a self-employed Amazon vendor purchases two things:

  • New PC
  • Items to sell on the web

The PC will be utilized for quite a while.

How to Define Fixed Asset?

It is something a business purchases, for the most part utilizing it for over one year, and is crucial to maintaining the business. In the model over, the Amazon vendor will utilize the PC for running and dealing with their business.

Some of the examples are:

  • Printer
  • Vehicle
  • Premises
  • Office furniture
  • PC


How to Calculate UK Depreciation:

There are two primary techniques utilized in the UK to calculate depreciation.

  • the straight-line strategy
  • the reducing balance method

Stage 1: Work out UK Depreciation Rate

The depreciation rate you need will be founded on the sort of resource and how long it will be utilized.

A few assets have a residual value, in this case, the depreciation rate will be marginally different.

What is Residual Value?

It is the sum an asset is worth towards the end of its helpful financial life. Other assets, similar to Buildings, go up in worth.

Here are a few examples of depreciation rates:

Depreciation Rate on a Laptop:

A specialist purchases another PC and hopes to save it for a very long time before it needs replacement. 3 years will be depreciation rate on PC.

Depreciation for Land:

In the UK it is viewed as that land will consistently have a worth of basically a similar value it was bought for, if not go up in esteem.

Stage 2: Choose UK Depreciation Method

The expense of a fixed asset can be discounted against benefits over valuable life in two diverse manners:

Straight-Line Method of Depreciation

The straight-line strategy is the least complex approach to devalue assets where you discount the resource over the valuable life in equal amount.

The formula to calculate depreciation:

Depreciation = Cost of Fixed Asset/Useful Life of Fixed Asset

Calculating Straight Line Depreciation – Examples:

You have bought a PC for £1,000 and gauge you will save it for a very long time. Towards the finish of the 3 years, the PC will have no leftover worth. The PC will be devalued at £333.33 each year for a very long time (£1,000/3 years). On the off chance that the PC has a remaining worth in 3 years £200, depreciation would be determined on the measure of significant worth the PC is relied upon to lose.

Reducing Balance Method:

It is especially pertinent if you have an asset that loses huge worth towards the start of its life, like a van or truck. You calculate depreciation of the asset by a percentage in the first year. Then, at that point before very long, you calculate depreciation at a similar rate dependent on the remaining worth.


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Double Entry Bookkeeping for Depreciation:

Whenever you have determined depreciation, no matter which strategy you decide for depreciation, the double-entry accounting is something that will remain similar.

The entry in books:

  • Dr Depreciation (benefit and misfortune account)
  • Cr Fixed resource depreciation (Balance sheet)


The Effect of Depreciation on Profitability:

Depreciation intermittently discounts a part of the expense of an asset as an authoritative expense in the benefit and loss of a business. This reduces business benefits each monetary year as an overhead. It is an impression of the utilization of an asset every year as a business creates income.


Depreciation and Corporation Tax:

Depreciation isn’t allowed for corporations’ taxes. The explanation depreciation is not a suitable cost is that depreciation rates and techniques change business to business. It might mean a business picks a more forceful depreciation rate than is suitable, to get charge help as soon as possible.


Depreciation and Self-Assessment:

It is not highly recommended for self-assessment. Once more, HMRC permits self-employed entrepreneurs to claim capital allowance. Where self-employed people decide to utilize the cash basis for finishing their self-assessment tax return they can claim the full expense of the resource in the year they get it. With the exception of vehicles.



To sum up the discussion of calculating depreciation, we can say that the capital allowance is a proper rate that organisations need to use to compute the amount of the expense of the asset that is tax allowable every year. The process demands more of a professional expert for smooth processing.


Why not speak to one of our experts and see how we can help with what you are looking for. 


Disclaimer: This blog contains general information about calculating depreciation.

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