Almost every company with vans, computers, machinery or furniture has a depreciation charge in its accounts. That charge reduces the accounts profit, but it is not a deduction for Corporation Tax. Instead, the company claims capital allowances on what it actually spent. This guide follows a depreciation charge from the trial balance through to the tax computation in Tax Optimiser: where to add it back, how to record the fixed assets so the allowances are right, what to do when an asset is sold, and the other adjustments you may need along the way.
Nothing is added back automatically. The computation starts from the profit in your accounts and uses the trial balance lines exactly as they are. Depreciation stays deducted until you tell the computation to add it back — on the P & L section or the Assets section. The Considerations check (see the end of this guide) warns you if you forget.
Why depreciation is added back
Depreciation spreads the cost of an asset over the years the company expects to use it. How fast that happens is a choice made in the accounts, so the tax rules ignore it. The company gets tax relief for the cost of the asset through capital allowances instead, at rates set by law: often 100% in the year of purchase through the Annual Investment Allowance (AIA), otherwise a percentage of the pool balance each year.
So the computation does two things with a fixed asset:
- Adds back the depreciation charged in the accounts, and reverses any accounts profit or loss when an asset is sold.
- Deducts the capital allowances due for the period.
There is no box for depreciation on the CT600. Both steps happen inside the trading profit in box 155 (or the property business profit in box 190, for a property company). The allowances themselves are reported in boxes 690–775.
Where depreciation sits in your trial balance
A trial balance normally has depreciation in two places: the charge in the profit and loss account, and the accumulated depreciation on the balance sheet. Only the P&L charge changes the profit, so that is what you add back. The balance-sheet lines give you the figures you need for the Assets section.
| Trial balance account | What it is | What to do in the computation |
|---|---|---|
| Depreciation of tangible assets (FRS 102), or Depreciation (FRS 105) | The P&L depreciation charge for the year | Add it back — step 1 |
| e.g. Plant and machinery cost b/f, depreciation b/f | Cost and accumulated depreciation at the start of the year | Cost less depreciation = net book value brought forward on the Assets section — step 2 |
| e.g. Plant and machinery additions, Motor vehicle additions | What the company bought in the year | Claim capital allowances on the Fixed Asset Additions tab — step 3 |
| e.g. Plant and machinery Depreciation charge for the year | The balance-sheet side of the P&L charge | Nothing — it is the same charge seen from the balance sheet; never add it back twice |
| Disposal of assets at cost, Depreciation on assets disposed in the year, Profit/loss on disposal of tangible assets | An asset sold or scrapped in the year | Reverse the profit or loss and put the proceeds into the pool — step 4 |
| Impairment | A one-off write-down of an asset | Add it back, like depreciation — see other adjustments |
| Amortisation of intangible fixed assets | Depreciation of goodwill, software licences and other intangibles | Different rules: often deductible — see other adjustments |
Step 1: add the depreciation back
Open the period’s Corp Tax Calculations. There are two places to add depreciation back, and you can use either or both:
On the P & L section (recommended)
Choose P & L from the Sections list. Each expense line from the trial balance has a Disallowable column. Enter the whole depreciation charge against the depreciation line, then Save.
On the computation, the add-back appears under Accounting Disallowable Expenditure Addback with the account’s own name (“Depreciation of tangible assets”). If you need to show how the figure is made up, switch on Detailed view and use Create Disallowable to enter a breakdown.
On the Assets section
Choose Assets, stay on the General tab, and enter the charge in the Depreciation charge in year row, in the column of the pool the assets belong to. This route also builds the D1 Fixed Assets schedule on the computation (step 2). On its own it adds the charge back as Fixed Assets Depreciation.
Using both: it is only added back once
Entering the charge in both places does not double it. The computation adds back the larger of the two figures: the P&L Disallowable amount, plus any extra on the Assets section as “Fixed Assets Depreciation”. When the two match, as in the example below, you see a single line with the account’s name. If they differ, Considerations asks you to check which figure is right.
Step 2: record the fixed assets on the General tab
The General tab of the Assets section holds two sets of figures side by side. The accounts figures (net book value and depreciation) build the D1 schedule and reverse disposal profits. The tax figures (the pool brought forward) drive the allowances. Switch on the pools you need under Pools shown (most assets go in Plant and Machinery), then fill in each pool’s column:
| Row | What to enter | Where it comes from |
|---|---|---|
| NBV B/F | Net book value at the start of the period | Cost b/f less depreciation b/f, from the trial balance |
| Additions | Filled in for you | The Fixed Asset Additions tab (step 3) |
| Depreciation charge in year | The accounts depreciation | The P&L depreciation line |
| NBV on disposals | Net book value of anything sold or scrapped | Disposal at cost less depreciation on disposals (step 4) |
| Disposal proceeds | What the company received for it | The sale invoice; it also comes off the tax pool |
| Write down allowance B/F | The tax pool brought forward — not the net book value | Last year’s computation: the pool carried forward |
Check the NBV carried forward row against the balance sheet. If it agrees, the figures you have entered match the accounts.
Net book value and tax written down value are different numbers. Net book value is cost less depreciation. The tax pool is cost less capital allowances. With AIA they drift far apart. Put last year’s tax pool in Write down allowance B/F, not the net book value. If last year’s computation was done in Tax Optimiser, a banner shows the pools it carried forward, with a Use as written down allowance B/F button.
Step 3: claim capital allowances on what was bought
On the Fixed Asset Additions tab, click Add Asset for each purchase. Enter its name, date and cost, and choose the Pool. Most equipment and vans go to Plant and Machinery. Cars go to a pool by their CO₂ emissions. New plant can instead take full expensing or another first-year allowance.
Then, on the AIA Allocation tab, enter how much AIA to claim against the period’s plant and machinery spend (PM Allocated) and special rate spend (SR Allocated). Claim it against special rate spend first, because that pool only gets 6% a year. Anything you do not cover with AIA stays in the pool and gets the writing-down allowance instead.
The computation compares the additions in the trial balance with the Fixed Asset Additions tab. If they differ, Considerations tells you: “The accounts show £30,000 of tangible fixed asset additions, but £0 of additions are entered on the Fixed Asset Additions tab…”. An addition that does not qualify for allowances, such as land, should still be entered, with the pool set to Ineligible. The capital allowances guide covers every pool and allowance in detail.
Step 4: assets sold or scrapped — profit or loss on disposal
When an asset is sold, the accounts show a profit or loss on disposal: the proceeds less its net book value. For tax, that profit is not taxable and that loss is not deductible. Instead, the proceeds come off the capital allowances pool. So both need correcting.
For an asset in a pool, enter the sale on the General tab, in the pool’s column:
- NBV on disposals: its cost less the depreciation charged on it (the Disposal of assets at cost line less the Depreciation on assets disposed in the year line in the trial balance);
- Disposal proceeds: what the company received.
The Profit / loss on disposals row works out the difference. The computation deducts a profit (or adds back a loss) as “Profit and Loss on Disposal”, and takes the proceeds off the pool before the writing-down allowance is worked out.
The trial balance “Profit/loss on disposal” line is not reversed on its own. Only the General tab rows above reverse it. If you record the sale on the Fixed Asset Disposals tab instead — for example an asset that had full expensing, where the sale creates a balancing charge — that tab updates the allowances but leaves the accounts profit or loss in place. Reverse it yourself:
- a loss on disposal: enter it in the Disallowable column on the P & L section;
- a profit on disposal: on the Accounting Adjustment section’s Income tab, add a row with the profit as both the P/L amount and the Non-Taxable amount.
Record each sale in one place only. Proceeds entered on both the General tab and the Fixed Asset Disposals tab come off the pool twice.
How it shows on the computation: a worked example
Example Depreciation Ltd makes up accounts to 31 March 2026. Its trial balance shows a profit of 55,500, after a depreciation charge of 14,000 and a 1,500 profit on selling its old van for 4,000. It bought a new van for 30,000. Its main pool brought forward from last year’s computation was 20,000.
| £ | |
|---|---|
| Profit per accounts | 55,500 |
| Less: profit on disposal (not taxable) | (1,500) |
| Add: depreciation (disallowable) | 14,000 |
| Profit before capital allowances | 68,000 |
| Less: AIA on the new van (box 690) | (30,000) |
| Less: writing-down allowance, 18% × (20,000 pool − 4,000 proceeds) | (2,880) |
| Trading profit (box 155) | 35,120 |
| Corporation Tax at 19% | 6,672.80 |
Without the add-back the company would have paid tax on 14,000 less profit, but it would also have received no allowances. Depreciation and capital allowances often come out close over the life of an asset, but rarely in the same year.
Open Computation Document from the bottom of the Sections list to see the result. Page B1 Accounts Adjustments starts from the profit per accounts, deducts the disposal profit, adds back the depreciation and takes off the capital allowances:
Page D1 Fixed Assets reconciles the net book value, with the disposal analysis that produced the 1,500:
Pages D2 Capital allowances and D3 Annual investment allowance show the allowances that replace the depreciation:
The trading profit then reaches the return. The CT600 Boxes section shows box 155:
The main pool writing-down allowance is 18% a year, falling to 14% from 1 April 2026. For a period that spans that date, the rate is time-apportioned.
Other adjustments you may need
Impairment
An impairment write-down of a tangible asset is capital, just like depreciation, so it is not deductible. Enter it in the Disallowable column against the Impairment line on the P & L section. The depreciation check in Considerations does not look at impairment, so nothing will remind you.
Amortisation of intangible assets
Goodwill, software and other intangibles are treated differently. For most intangibles a company created or bought from April 2002, the amortisation in the accounts is deductible under the corporate intangibles rules (CTA 2009 Part 8). Exceptions include goodwill bought between July 2015 and March 2019, and assets that pre-date April 2002. Enter the charge on the Assets section’s Intangible tab:
- with nothing in the Intangible fixed assets register, the Amortisation charge in year is added back in full, and Considerations reminds you it is usually deductible;
- once you list the assets in the register, with each one’s tax treatment, the register works out what is added back and what is deducted instead. It also covers the 4% fixed-rate election and gains or losses on disposal.
Do not mark amortisation Disallowable on the P & L section if it is deductible.
Assets held under finance leases
When the company leases an asset on a finance lease, the accounts show it as an asset and depreciate it. That depreciation stands in for the lease payments, and it is normally deductible. Leave it out of the Disallowable amount, and enter it on the Intangible tab in the Amortisation charge in year row, Finance Leasing column, rather than in the pool columns, so it is not added back.
Buildings and land
Depreciation on buildings is added back like any other. Buildings do not go into the plant and machinery pools. New commercial buildings and works may get the 3% Structures and Buildings Allowance: switch on Structures and Buildings on the General tab. Land never qualifies, so enter it as Ineligible.
Property companies
If the depreciation belongs to a UK property business, set the line’s Type to UK property on the P & L section. You can also set Capital allowances claimed by to UK property business at the top of the Assets section. The add-back and the allowances then go into the property business result (box 190, or box 805 for a loss) instead of the trade. See property income.
Simple Entry
If you prepared the accounts with Simple Entry, its Corporation Tax step has a Depreciation add-back (SE 11) box. It defaults to the depreciation in the accounts, so the add-back is made for you. See choosing how to enter your figures.
Checking your work: Considerations
When the calculation spots something worth a second look, a Considerations entry appears near the bottom of the Sections list, just above CT600 Boxes. Its badge shows how many are open. Two checks cover depreciation:
- Depreciation not added back: “£14,000 of depreciation is charged in the P&L but only £0 is added back…”. It appears when the P&L depreciation charge is more than the amount added back on either route.
- The two routes disagree: the Assets section and the P&L Disallowable column hold different depreciation figures. The larger one is used; make sure it is the right one.
Go to section takes you to the input that needs changing. Override accepts the figure as correct, for example where part of the charge is finance-lease depreciation that is genuinely deductible. An overridden warning moves to an Overridden list with who overrode it and when, and comes back if the amount changes. Restore brings it back by hand.
Before you file, run through this list:
- The full P&L depreciation charge is added back, and the Considerations warning has gone.
- Impairment, if any, is marked Disallowable.
- NBV carried forward on the General tab agrees with the balance sheet.
- Write down allowance B/F is last year’s tax pool, not the net book value.
- Every addition is on the Fixed Asset Additions tab, and AIA is allocated.
- Any profit or loss on disposal has been reversed exactly once.
Common questions
Do I need to enter depreciation on both the P & L and the Assets section?
No. Either one adds it back. The computation uses the larger of the two, so entering it in both does not double it. Filling in the Assets General tab as well gives you the D1 Fixed Assets schedule and the profit-on-disposal reversal, so most people do both.
Why did my tax go up when I added the depreciation back?
Because depreciation is not deductible; the relief comes from capital allowances instead. If the tax looks too high, check that the year’s purchases are on the Fixed Asset Additions tab with AIA allocated, and that the pool brought forward is filled in.
Is a profit on selling a fixed asset taxed?
Not as income. The accounts profit is deducted in the computation, and the sale proceeds reduce the capital allowances pool instead. If the proceeds exceed the pool, that creates a balancing charge. Enter the net book value and proceeds on the Assets General tab.
What is the difference between net book value and the tax written down value?
Net book value is cost less accounting depreciation. Tax written down value is cost less the capital allowances claimed. They are tracked separately: NBV B/F on the General tab is the accounts figure, and Write down allowance B/F is the tax pool.
Is amortisation of goodwill added back?
Usually not, for goodwill and other intangibles acquired from April 2002: the amortisation is deductible under the intangibles rules. The exceptions are goodwill bought between July 2015 and March 2019 and older intangibles. Use the Intangible fixed assets register on the Assets section to set each asset’s treatment.
Where does depreciation appear on the CT600?
Nowhere on its own. It is added back inside the trading profit in box 155. The capital allowances that replace it are shown in boxes 690 to 775.
Where to go next
- Capital allowances — pools, AIA, first-year allowances and full expensing.
- The Corporation Tax computation — every section of Corp Tax Calculations.
- Tangible fixed assets note — the accounts side of the same figures.
- CT600 box-by-box guide — including the capital allowances boxes.
- GOV.UK: claiming capital allowances.