Depreciation

The gradual reduction in value of a physical asset, like equipment or vehicles, recognised as an expense over time rather than all at once.

Depreciation reduces your taxable profit, which means lower tax bills. It also gives a realistic picture of what your assets are worth on your balance sheet.

You buy a £3,000 laptop for your business. Over 3 years, you depreciate it at £1,000 per year, claiming that as a business expense each year.