HMRC internal manual

Business Leasing Manual

‘Income-into-capital’ schemes and back loaded leases: Introduction to back-loaded leases: negative depreciation

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Usually, depreciation is a deduction in arriving at profits but in the example at BLM70035 there are additions (in Year 1) to bring the rentals due for the year up to the GAAP earnings. Lessors call these additions ‘negative depreciation’, in contrast to ordinary depreciation which is ‘positive’. This is only a matter of presentation which largely derives from the accountancy approach before SSAP 21 was issued in 1984. Negative depreciation, like ‘positive depreciation’, is simply a balancing entry so that the rentals due plus ‘depreciation’ equal the ‘interest’ earnings. The contra entry for depreciation is in the lessee debtor accounts shown in the balance sheet. Negative depreciation increases the balances; positive depreciation reduces them.