Fixed asset

Definition

A fixed asset (or non-current asset) is a tangible resource held for long-term use in the business rather than resale — land, buildings, machinery, vehicles. Its cost is spread over its life via a depreciation schedule.

In plain terms

It is the kit you keep and use, not the stock you sell. A van is a fixed asset for a courier; the parcels are not.

Why it matters for your company

Fixed assets anchor the top of your balance sheet and often serve as security. Buying them can trigger valuable capital allowances. Fund equipment without draining cash via asset finance.

In practice

Picture a UK limited company replacing an ageing delivery van. The moment the vehicle is put to use in the business, it moves onto the balance sheet as a fixed asset rather than being expensed immediately — its cost is recognised over time through the depreciation schedule rather than hitting profit in one go. The same logic applies to a bakery buying an oven or an office fitting out new workstations: each item is judged by whether it will be used to run the business over multiple years, not sold on.

Directors sometimes assume any significant purchase automatically counts. In practice, the test is intention and use — a vehicle bought by a courier firm to make deliveries is a fixed asset, but the same vehicle bought by a motor trader to resell sits in stock instead. Getting this classification right matters at year end, because it shapes how the accounts present the company's underlying asset base to anyone reading them, including a lender.

How lenders read it

When a lender looks at a set of company accounts, the fixed asset line signals more than book value. A healthy, well-maintained base of property, plant or vehicles suggests a business with genuine operating substance and a track record of reinvestment, which can support a stronger overall reading of the company. Conversely, a fixed asset base that has aged without replacement, or that has shrunk sharply between periods, can prompt a lender to ask why — whether that reflects a deliberate shift in the business model or a sign of constrained cash flow.

It is also worth remembering that a fixed asset's value on the balance sheet is a net, depreciated figure, not necessarily what it would fetch if sold or what it could support as asset finance security. Lenders reading a company's accounts will typically look behind the headline number to the nature and age of the underlying assets rather than take the balance sheet total at face value.