CFM96440 - Interest restriction: group-EBITDA: capital (expenditure) adjustment

TIOPA10/S417

The capital (expenditure) adjustment removes amounts of capital expenditure from calculating group-EBITDA. It forms part of the overall depreciation and amortisation adjustment which is added back to the profit before tax figure for the period.

The main component of the capital (expenditure) adjustment is the relevant capital expenditure. This comprises amounts of capital expenditure related to relevant assets that:

  • Are written off in the period the capital expenditure is incurred;
  • Are written off by way of depreciation, amortisation or impairment of the asset; or
  • Are recognised in profit or loss by way of a provision for future costs.

In addition, the capital (expenditure) adjustment is reduced, or potentially made negative, as a result of:

  • Relevant capital expenditure reversals, being amounts of relevant capital expenditure incurred (and written off) in a prior period but reversed in the relevant period; and
  • Relevant capital income, being receipts of a capital nature relating to the asset. In particular, this would include amounts recognised in profit or loss in respect of grants and contributions received by the group that fund capital expenditure.Adjustments are only made in respect of capital expenditure (and receipts related to that capital expenditure). This is based on established tax law, and aligns with capital expenditure that could be eligible for capital allowances and capital expenditure disallowed in the calculation of trading profits.

However, depreciation in respect of an asset held under a finance lease is included (see CFM97800+).

Relevant capital expenditure does not include amounts relating to profits or losses on disposal which are separately dealt with by the capital (disposals) adjustment.

The references to capital expenditure includes amounts of interest and other financing amounts which have been capitalised in the carrying value of the asset in question.

Further guidance