Is depreciation an allowable expense for sole traders?

No. Depreciation in your accounts is not a tax deduction, because the law treats it as capital. Instead, on the cash basis, the default since 6 April 2024, you claim equipment when you pay; otherwise you claim capital allowances.

This page is for self-employed tradespeople. It follows the legislation, HMRC's manuals and GOV.UK as checked on 17 October 2026.

Why depreciation is added back

Section 33 of the Income Tax (Trading and Other Income) Act 2005 says that in working out trade profits, "no deduction is allowed for items of a capital nature". A van, a mixer or a set of power tools you keep is capital.

Accounts spread that cost over the years you use the item, as depreciation. HMRC's manual (BIM35030) says depreciation "constitutes a proper deduction" for accounts, "but for tax purposes the expense is not allowed on the basis that it is capital". So any depreciation in your profit and loss account is added back. The tax return notes say the same of losses on selling assets. Relief comes another way, depending on your accounting method.

What you get instead

Cash basis. GOV.UK says that apart from cars, items you buy and keep for the business are claimed "as allowable expenses in the normal way". HMRC's manual (BIM72035) lists the exceptions under section 33A. They include cars, land, buying a business, education or training, assets not bought for continuing use in the trade, and assets not expected to wear out or lose 90% or more of their value within 20 years.

Traditional accounting. The AIA lets you deduct the full cost of most plant and machinery, up to £1 million a year. Anything not covered goes into a pool and gets writing down allowances:

• Main pool: 14% a year from 6 April 2026 for Income Tax (18% before).
• Special rate pool: 6% a year, including cars bought from April 2021 with CO2 emissions over 50g/km.
• Small pools allowance: if a main or special rate pool is £1,000 or less, you can claim it all.

Cars never get the AIA. GOV.UK says vans, lorries and trucks are not cars, so they can. Since 1 January 2026 there is also a 40% first-year allowance for new, unused main-pool items, but not cars or second-hand items. HMRC's policy paper says it is open to unincorporated businesses, such as sole traders, and the 2025-26 return notes put it in box 55.

A worked example

A plasterer buys a used £12,000 van and £2,000 of tools in 2026-27. Both are used only for work, and the plasterer is not VAT registered. Their bookkeeper depreciates both over 4 years, so the accounts show £3,500 of depreciation.

Either way the full £14,000 comes off 2026-27 profits. The depreciation never does.

Had the plasterer bought a £12,000 car with emissions over 50g/km instead, there would be no AIA on either method. The claim would be 6%, or £720, in the first year, unless they used the mileage rate instead.

Three years later the van sells for £5,000. On the cash basis, HMRC's manual (BIM72020) says the £5,000 is a business receipt. On traditional accounting the van was written down to nil, so if nothing else is left in the pool, the £5,000 is a balancing charge. Any profit or loss on sale the accounts show is taken out, like depreciation. This is an example only.

How it shows in Making Tax Digital

Making Tax Digital (MTD) means sending HMRC a summary every quarter. HMRC's update notice lists the expense categories each update must hold, and depreciation is not one of them. In our reading, depreciation stays out of your quarterly updates.

Once your fourth update is in, GOV.UK says you adjust your figures before the tax return. That includes removing disallowable expenses and claiming capital allowances. On the 2025-26 return, depreciation goes in box 29 and again in box 44 as disallowable, the AIA in box 49 and a balancing charge in box 59.

What this means for you

You will not get tax relief for depreciation, whatever your accounts show. On the cash basis you claim the van and tools when you pay for them, with cars the exception. On traditional accounting the AIA usually gives the same result in year one. Selling later can bring some tax back.

Steps to get relief on your van and tools

1. Check your accounting method on your last tax return.
2. List each item you bought to keep: date, price and business-use share.
3. Mark any cars, which go through capital allowances on either method.
4. On traditional accounting, add back depreciation and choose the AIA or writing down allowances.
5. Record each sale or item you stop using, with the money or value.

For more on vans, see claiming your van and selling your van. The free MTD check shows when MTD starts for you, and the trades section has more guides.