CFM96480 - Interest restriction: group-EBITDA: example 1

PQ group acquired machinery for £10m in 2018, with the cost being amortised over five years.

Year ended 31 December 2018

PQ group’s financial statements show a depreciation charge of £2 million in respect of the asset. The capital (expenditure) adjustment in respect of the asset is therefore the £2 million. This amount is included in item A in S417(1) as an amount in respect of relevant capital expenditure and is therefore added to the profit before tax for the period in computing group-EBITDA.

Year ended 31 December 2020

PQ group’s financial statements show the asset at a net book value of £6 million at the start of the period. During the period the machine is sold for £7.5 million, giving a profit on disposal of £1.5 million.

The capital (disposals) adjustment will be (£1.5 million). This represents the profit on disposal recognised in the group’s financial statements. It an item B in the formula in S419(1) and is subtracted from the group’s profit before tax and interest in computing group-EBITDA. There is no recalculated profit amount (C), because the proceeds of £7.5 million are less than the original cost of £10 million.