Depreciation is the accounting method of spreading the cost of an asset across the years it is useful to you, instead of taking the whole cost in the year you bought it. It reduces the value shown on your balance sheet and creates a charge in your profit and loss account. It is a bookkeeping entry, not a payment — no cash leaves the business.
You choose a policy that reflects how the asset is actually consumed: a straight line charge each year, a reducing balance, or something based on usage such as hours run or miles covered. The aim is that the accounts show a realistic value for the kit and a realistic cost of using it.
Depreciation is not the same as tax relief. HMRC does not accept depreciation as a deduction, so it is added back when your taxable profit is worked out and capital allowances are claimed in its place. That is why your accounting profit and your taxable profit can differ noticeably in a year when you have bought heavily.
For asset finance decisions, the number that matters commercially is how fast the asset loses real market value against how fast you are paying the agreement down. If a machine depreciates faster than your balance reduces, you can end up owing more than it is worth — relevant if you plan to sell or refinance mid-term.
This is general information, not tax advice. Confirm your own position with your accountant or HMRC.