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HMRC internal manual

Corporate Finance Manual

Interest restriction: group-EBITDA: definition of group-EBITDA

TIOPA/S416

Group-EBITDA is the denominator used in the calculation of the group ratio percentage as part of the group ratio method. It is based on the group’s earnings for the period before interest, taxation, depreciation and amortisation, as shown in the consolidated Group accounts for the parent entity of the worldwide group. It is important to note, however, there is a particular statutory definition of group-EBITDA, so it is not likely that this will exactly align to the figure calculated by businesses for their own reporting purposes.

Group-EBITDA is calculated as follows:

  • The profit before tax, plus
  • the net group-interest expense, plus
  • the depreciation and amortisation adjustment.

These amounts are all based on the amounts recognised as items of profit or loss in the financial statements of the worldwide group for the period of account. Note that any of these amounts may be negative.

Profit before tax

The group’s profit before tax means the amounts recognised in the group financial statements for the period as items of profit or loss excluding any amounts of tax expense (or income).

Derivatives

In calculating the group-EBITDA the fair value movements on derivatives that have a hedging function are ‘disregarded’.

Research and Development Expenditure Credits

In calculating the group-EBITDA, any amounts of R&D expenditure credits (RDECs) are ignored. 

Elections

The calculation of group-EBITDA can be modified through the operation of the following elections:

  • Alternative calculation
  • Chargeable gains
  • Non-consolidated investment
  • Consolidated partnerships