What are fixed assets?

Published Wednesday 17 June 2026

Table of contents

• What are fixed assets?
• Key characteristics of fixed assets
• Examples of fixed assets
• Fixed assets vs current assets
• How fixed assets are recorded on the balance sheet
• Depreciation of fixed assets
• The fixed asset lifecycle
• Fixed asset management for small businesses
• Manage your fixed assets with confidence
• FAQs on fixed assets

Key takeaways

• Fixed assets are long-term physical resources your business owns and uses to generate income, such as equipment, vehicles, and property. They're also known as property, plant, and equipment (PP&E) on the balance sheet.
• Unlike current assets, fixed assets aren't intended for sale within the normal course of business. They stay on your balance sheet for more than 1 financial year and lose value over time through depreciation.
• Recording fixed assets accurately matters for tax purposes, financial reporting, and understanding the true value of your business. In the UK, capital allowances let you claim tax relief on qualifying purchases.
• Keeping a fixed asset register and tracking depreciation helps you plan replacements, manage cash flow, and stay compliant with HMRC requirements.

What are fixed assets?

Fixed assets are long-term tangible items your business owns and uses to operate and earn revenue. They're not bought with the intention of selling them quickly; instead, they provide value over multiple years.

In accounting, fixed assets are often called property, plant, and equipment (PP&E). You'll find them listed under non-current assets on your balance sheet. They represent a significant investment in your business and form the backbone of day-to-day operations.

Common examples include office buildings, delivery vans, manufacturing machinery, and computer equipment. What makes something a fixed asset rather than an everyday expense is its useful life: if you expect to use it for more than 1 year, it's typically classed as a fixed asset.

Why fixed assets matter for your business

Understanding your fixed assets gives you a clearer picture of what your business is worth. The value of your fixed assets directly affects your balance sheet, your borrowing capacity, and the financial decisions you make.

For UK small businesses, fixed assets also have important tax implications. When you buy qualifying fixed assets, you can claim capital allowances to reduce your tax bill. Getting the accounting right from the start saves time and avoids problems when you file your tax return.

Key characteristics of fixed assets

Not every purchase counts as a fixed asset. There are specific characteristics that set fixed assets apart from day-to-day expenses and other types of assets on your balance sheet.

Tangibility

Fixed assets are physical items you can see and touch. This distinguishes them from intangible assets like patents, trademarks, and goodwill. If it has a physical form and your business uses it over the long term, it's likely a tangible fixed asset.

Long useful life

A fixed asset is expected to last and provide economic benefit for more than 1 accounting period, which typically means more than 12 months. A laptop you'll use for 3 years is a fixed asset; a pack of printer paper you'll use this week is not.

Not intended for resale

Your business buys fixed assets to use them, not to sell them on. A delivery van used to transport goods is a fixed asset. But if you're a car dealership, the vehicles on your forecourt are stock (inventory), not fixed assets, because they're there to be sold.

Capitalisation and depreciation

When you buy a fixed asset, you capitalise the cost rather than expensing it immediately. This means the purchase price goes onto your balance sheet as an asset, and you gradually write off the cost over the asset's useful life through depreciation. This approach matches the expense to the periods in which the asset generates revenue.

Illiquidity

Fixed assets aren't easy to convert to cash quickly. Unlike money in the bank or outstanding invoices, selling a piece of machinery or a building takes time and effort. That's why they sit in the non-current section of your balance sheet.

Examples of fixed assets

Fixed assets span a wide range of items depending on your industry and business type. Here are the most common categories you'll encounter as a small business owner.

• Land: plots owned for business use. Land is unique because it doesn't depreciate.
• Buildings: offices, warehouses, workshops, and retail premises your business owns.
• Vehicles: delivery vans, company cars, lorries, and other transport used in operations.
• Machinery and equipment: manufacturing machines, construction equipment, and production tools.
• IT and computer equipment: laptops, desktops, servers, printers, and networking hardware.
• Office furniture and fittings: desks, chairs, shelving, lighting, and fitted kitchens.
• Tools and instruments: specialised hand tools, measuring devices, and diagnostic equipment.
• Leasehold improvements: renovations and alterations made to a rented property that add lasting value.

The specific items that qualify as fixed assets depend on your business's capitalisation policy. Many small businesses set a minimum cost threshold; anything below that amount gets expensed immediately rather than capitalised.

Fixed assets vs current assets

Your balance sheet splits assets into 2 main categories: fixed (non-current) assets and current assets. Understanding the difference helps you read your financial statements and make better decisions about how your money is working.

Current assets are items your business expects to use up, sell, or convert to cash within 12 months. These include cash, stock (inventory), trade debtors, and prepayments. They're the short-term resources that keep your day-to-day operations running.

Fixed assets, by contrast, are the long-term items you rely on for more than 1 year. They're held for use in your business, not for quick sale. While current assets tend to fluctuate month to month, fixed assets stay on your balance sheet and gradually lose value through depreciation.

The key distinction matters for financial health. A business with strong current assets has good short-term liquidity. A business with substantial fixed assets has invested in its long-term capacity. Most healthy businesses need a balance of both. You can learn more about the differences in the current vs fixed assets glossary guide.

How fixed assets are recorded on the balance sheet

Recording fixed assets correctly on your balance sheet is essential for accurate financial reporting and tax compliance. Here's how the process works from purchase to ongoing reporting.

Capitalising the cost

When you buy a fixed asset, you record the full purchase price as an asset on your balance sheet rather than treating it as an expense on your profit and loss statement. The amount you capitalise includes the purchase price plus any costs directly needed to get the asset ready for use, such as delivery charges, installation fees, and import duties.

Where fixed assets sit on the balance sheet

Fixed assets appear in the non-current assets section of your balance sheet. They're typically listed at their net book value, which is the original cost minus the accumulated depreciation to date. This gives anyone reading your accounts a realistic view of what those assets are currently worth to the business.

Accumulated depreciation

Each year, you record a depreciation charge that reduces the carrying value of the asset on your balance sheet. The total of all depreciation charged since purchase is called accumulated depreciation. It sits as a contra entry against the asset's original cost, so the balance sheet shows the net book value at any given point.

Depreciation of fixed assets

Depreciation is the process of spreading the cost of a fixed asset over its useful life. Instead of recording the entire cost as an expense when you buy the asset, you recognise a portion of that cost in each accounting period the asset is in use.

Why depreciation matters

Depreciation ensures your financial statements reflect the true cost of running your business in any given period. Without it, your profits would look artificially low in the year of purchase and artificially high in the years that follow. It also helps you plan for replacements by showing how much value your assets have lost over time.

Common depreciation methods

There are several ways to calculate depreciation. The 2 most common methods used by UK small businesses are straight-line and reducing balance.

• Straight-line depreciation: you divide the cost of the asset (minus any estimated residual value) equally across its useful life. For example, a machine costing £10,000 with a 5-year useful life and no residual value would be depreciated at £2,000 per year.
• Reducing balance depreciation: you apply a fixed percentage to the asset's remaining book value each year. This front-loads the expense, meaning you recognise more depreciation in the earlier years when the asset is newer. It's often a better match for assets like vehicles and technology that lose value quickly at first.

Your choice of method should reflect how the asset actually loses value in practice. You can learn more about calculating depreciation in the depreciation glossary guide.

Assets that don't depreciate

Land is the main exception. Because land generally doesn't wear out or become obsolete, it isn't depreciated. If you buy a property that includes both land and a building, you'll need to split the cost and only depreciate the building portion.

Depreciation and UK tax: capital allowances

For tax purposes, HMRC doesn't use accounting depreciation. Instead, UK businesses claim capital allowances on qualifying fixed asset purchases. The main schemes include the Annual Investment Allowance (AIA), First Year Allowances, and Writing Down Allowances (WDAs). These let you deduct a portion of the asset's cost from your taxable profits each year. It's worth speaking to your accountant to make sure you're claiming everything you're entitled to.

The fixed asset lifecycle

Every fixed asset goes through a predictable journey from the moment you buy it to when you eventually dispose of it. Understanding this lifecycle helps you manage costs and plan ahead.

Acquisition

The lifecycle begins when you purchase or acquire the asset. At this stage, you record the full cost on your balance sheet, including any directly attributable expenses like delivery and installation. You'll also assign a useful life and choose a depreciation method.

Use and maintenance

During its working life, the asset contributes to your business operations. Regular maintenance helps extend its useful life and preserve its value. You'll record annual depreciation charges and may also need to account for any significant repairs or improvements that extend the asset's life or capacity.

Review and impairment

It's good practice to review your fixed assets periodically. If an asset's value drops significantly below its book value due to damage, obsolescence, or market changes, you may need to record an impairment loss. This adjusts the balance sheet to reflect the asset's true recoverable value.

Disposal

When an asset reaches the end of its useful life, or you no longer need it, you dispose of it by selling, scrapping, or trading it in. At disposal, you remove the asset's cost and accumulated depreciation from your balance sheet. If the sale price differs from the net book value, you record a gain or loss on disposal in your profit and loss statement.

Fixed asset management for small businesses

Keeping track of your fixed assets doesn't have to be complicated, but it does require some structure. Good asset management saves you time at year end and gives you better visibility over what your business owns.

Keeping a fixed asset register

A fixed asset register is a record of all the fixed assets your business owns. For each asset, you'll typically note the description, date of purchase, cost, depreciation method, useful life, and current net book value. This register is your go-to document when preparing accounts, filing tax returns, or answering questions from your accountant.

Tracking depreciation

Calculating and recording depreciation each period keeps your financial statements accurate. Accounting software can automate these calculations, saving you from manual spreadsheet work and reducing the risk of errors. Automated depreciation tracking also means your balance sheet and profit and loss figures stay up to date in real time.

Planning for replacements

By monitoring how much useful life your assets have left, you can plan and budget for replacements before they become urgent. This is especially useful for expensive items like vehicles and machinery, where an unexpected breakdown could disrupt your operations and cash flow.

Claiming capital allowances

Make sure you're taking advantage of the tax relief available on qualifying fixed assets. The Annual Investment Allowance (AIA) lets you deduct the full cost of most plant and machinery purchases up to the annual limit. Your accountant or bookkeeper can help you identify which assets qualify and ensure you claim the right amount.

Manage your fixed assets with confidence

Getting a handle on your fixed assets gives you a clearer view of your business's financial position. With accurate records, you can make informed decisions about when to invest, when to replace, and how much tax relief to claim.

Cloud accounting software makes it simpler to track your assets, automate depreciation, and keep your books in order without the manual effort. You'll spend less time on admin and more time focused on running your business. Get one month free.

FAQs on fixed assets

Here are some frequently asked questions about fixed assets and how they work in practice.

Is inventory a fixed asset?

No. Inventory (or stock) is a current asset because it's held for sale in the normal course of business. Fixed assets are items you buy to use in your operations over the long term, not to resell.

Are intangible assets the same as fixed assets?

Not exactly. Fixed assets are tangible, meaning they have a physical form. Intangible assets such as patents, trademarks, and software licences are also long-term assets, but they're classified separately on the balance sheet because they lack physical substance.

What is a fixed asset register?

A fixed asset register is a formal document you may need to provide during an HMRC enquiry or audit. While there's no legal requirement for sole traders to keep one, it's considered best practice and most accountants recommend it as part of year-end bookkeeping.

Can fixed assets increase in value?

Some fixed assets, particularly land and buildings, can increase in market value over time. However, for accounting purposes, most fixed assets are recorded at cost minus accumulated depreciation. Revaluation is possible under certain accounting standards, but most small businesses stick with the cost model for simplicity.

How do you calculate net fixed assets?

Net fixed assets equal the total original cost of all your fixed assets minus the total accumulated depreciation. This figure, also called net book value, tells you how much value remains in your long-term assets on the balance sheet.