CFM95710 – Corporate Finance Handbook – HMRC Internal Handbook


TIOPA10 / PART10 / CH6

The function of the corporate interest restriction is to provide interest deductions based on the global group’s total “EBITDA tax” amount for the period of the account.

This is a measure specifically defined in the regulations and represents the taxable profit of the group in the United Kingdom, before deduction of interest, capital deductions (the tax equivalent of “depreciation”) and depreciation. A number of other specific elements are also adjusted in accordance with the legislation.


“EBITDA” – Earnings Before Interest, Taxes, Depreciation, and Amortization – is a common concept, frequently used in commercial loan agreements to measure a borrower’s performance from year to year. This is an attempt to move closer to a cash measure rather than accounting, removing major non-monetary deductions from the earnings figure.

The use of tax-EBITDA is based on this business concept, but it is separate. In particular, because it measures activity that falls within the scope of UK corporation tax, only taxable profits and losses are included.


EBITDA-tax is a concept defined in Chapter 6 of Part 10 of TIOPA 10 in relation to corporate interest restriction legislation and is intended to represent income subject to tax in the United Kingdom.

{#} Global taxation-EBITDA

The statutory definition of the group’s overall fiscal EBITDA for an accounting period is TIOPA10 / S405. This is defined as the total fiscal EBITDA of each group member company at any time during the accounting period.

A company’s fiscal EBITDA can be a negative amount. However, when the total of amounts for all companies is negative, the total amount of EBITDA tax is considered to be zero.

{#} Taxation-EBITDA of a company

The legal definition of tax-EBITDA for a company in relation to the accounting period of a group is in TIOPA / S406 (1). This is based on the amounts of profits adjusted for the corporation tax of the company which are attributable to the accounting period of the group. Note that if a company is not a UK group company, no amount is taken into account for corporate tax, so its fiscal EBITDA must be zero.

When there is only one relevant accounting period of the company for the group accounting period, the fiscal EBITDA of the company is simply the adjusted profit for corporation tax for the relevant accounting period.

  • However, when there are multiple periods, the company’s fiscal EBITDA is the sum of the adjusted corporate tax profits for each period.
  • The purpose of the calculations is to arrive at an aggregate tax-EBITDA figure for a particular account period of a group. As a result, only the amounts of a relevant accounting period that are attributable to the accounting period of the group are included in the adjusted corporation tax result of the company for the accounting period. It is therefore necessary to adjust the periods not taken into account which occur when:
  • A relevant accounting period of a group company falls partly outside the group accounting period, or

The company joins or leaves the group during the group’s accounting period.


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