Is depreciation and amortisation
tax deductible?

No. Depreciation of equipment, vehicles and other assets is not an allowable expense (GOV.UK; SA103F notes). Tax relief for things you keep comes instead through capital allowances on traditional accounting, or as an expense when you buy them on the cash basis (GOV.UK).

Accountants depreciate assets to spread their cost over the years they are used. Tax does not follow that. Instead, it has its own system: capital allowances on traditional accounting, and, on the cash basis, an expense when you pay for the asset. Depreciation in your accounts is simply added back.

Is depreciation and amortisation tax deductible?

The HMRC rule

Depreciation of equipment and vehicles is not allowable. Tax relief for things you keep comes through capital allowances, or as an expense on the cash basis. The rule comes from Reselling goods, Self-employment (full) notes, SA103F, Claim capital allowances.

GOV.UK says you cannot claim depreciation of equipment (reselling goods). The SA103F notes say depreciation of equipment or cars and losses on sales of assets are not allowable, and if included in box 29 must also go in box 44 (SA103F notes). Capital allowances are claimed instead on traditional accounting (capital allowances).

When you can claim it

• Capital allowances on equipment and vehicles, on traditional accounting.
• The Annual Investment Allowance, up to £1 million.
• Writing down allowances on the main and special rate pools.
• A cash basis expense for most equipment when you buy it.

When you cannot

• Depreciation charged in your accounts.
• Amortisation of intangible assets for a sole trader.
• Losses on selling assets, as an expense.
• Both depreciation and capital allowances.

What to claim instead

If you prepare accounts with depreciation, add it back in the tax computation and claim capital allowances. If you use the cash basis, there is usually no depreciation in your figures at all, because equipment is expensed when bought.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is something you buy to keep. On traditional accounting that means capital allowances, where the item qualifies, rather than an expense. On the cash basis most equipment is an ordinary expense, but cars, land and buildings never are.
4. Is there a specific rule? For depreciation and amortisation, the deciding rule is depreciation: depreciation of equipment and vehicles is not allowable. Tax relief for things you keep comes through capital allowances, or as an expense on the cash basis.

Worked example: a van on traditional accounting

A courier buys a £24,000 van and depreciates it at £6,000 a year in her accounts. For tax, she adds back the £6,000 and claims the Annual Investment Allowance of £24,000 in year one. Her taxable profit is £18,000 lower than her accounting profit in year one, and higher in later years.

Why depreciation is not allowed

Depreciation depends on estimates: how long an asset will last and what it will be worth at the end. Tax needs fixed rules, so the law provides capital allowances at set rates instead. That way everyone gets the same relief for the same asset.

Capital allowances

On traditional accounting, the Annual Investment Allowance gives 100% relief on most plant and machinery, up to £1 million a year. Items not covered go into pools with writing down allowances: 14% a year in the main pool from April 2026 (18% before) and 6% in the special rate pool. Cars have their own rules based on emissions.

Profits and losses on sale

When you sell an asset, your accounts show a profit or loss against its depreciated value. For tax, that is also added back or deducted, and the sale proceeds go into the capital allowances pool instead, which can give a balancing allowance or charge.

The cash basis

On the cash basis, most equipment is an expense when you pay, so there is nothing to depreciate. Cars are the main exception: they go through capital allowances whichever basis you use, unless you use mileage rates.

Amortisation and intangibles

Amortisation of intangible assets, such as goodwill, is not allowable for a sole trader. Companies have a separate intangibles regime. For sole traders, a purchased intangible is generally capital with no relief as it is used.

Leased assets

If you lease equipment or a vehicle, you do not own it, so there is nothing to depreciate or claim capital allowances on. The lease rentals are the expense, subject to the 15% restriction for some cars. At the end of the lease, there is no disposal to account for, and no balancing charge or allowance.

Where it goes

Depreciation and losses on sale go in box 29 of the full self-employment pages, only on traditional accounting, and the same amount in box 44 so it is added back. Capital allowances go in boxes 49 to 50.

Where it goes on your return and in MTD

Because it is not allowable, a sole trader leaves it out of expenses altogether. If it went through your business account, record it as drawings or a non-business payment, and if your accounts include it, add the same amount back in the disallowable column of the full self-employment pages.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep purchase invoices with the date and cost, a list of the equipment you own for the business, and a note of any personal use. When you sell or scrap an item, record what you received, because it affects capital allowances or, on the cash basis, counts as income. Records must be kept for at least five years after the 31 January deadline for the tax year.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Claiming depreciation as an expense.
• Claiming depreciation and capital allowances together.
• Forgetting to include sale proceeds in the capital allowances pool.

Related expenses

This item sits in the depreciation and loss or profit on sale of assets category. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.