Corporate interest restriction ― calculating tax-EBITDA

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Corporate interest restriction ― calculating tax-EBITDA
  • Introduction
  • Calculating tax-EBITDA
  • Calculating tax-interest expense amounts
  • Calculating tax-interest income amounts
  • Calculating aggregate net tax-expense or income


This guidance note deals with the calculation of tax-EBITDA, which is required for both the calculation of the fixed ratio method and the group ratio method under the CIR rules. For a general overview of the regime, see the Introduction to the corporate interest restriction guidance note.

HMRC has published guidance  on the new rules for its Corporate Finance Manual, and references in this guidance note are to the Corporate Finance Manual. The latest version, published on 28 February 2018, includes commentary on additional technical changes to ensure the regime works as intended, which are contained within Finance Act 2018, s 24 and Schedule 8.

Calculating tax-EBITDA

The first step in both the fixed ratio method and the group ratio method limits interest relief by reference to a proportion of the group’s aggregate tax-EBITDA. In broad terms, aggregate tax-EBITDA is a measure of the group’s earnings that are within the UK tax net before interest, taxes, depreciation and amortisation, all measured using UK tax principles.

TIOPA 2010, s 405

Aggregate tax-EBITDA is intended to represent only that amount of the group’s income that is subject to tax in the UK. Therefore, in practice, the calculation will only include companies that are within the scope of UK corporation tax. It is the amount to which the fixed ratio (30%) or, if an election is made, the variable group ratio percentage (GRP) is applied when calculating a group’s interest allowance for a given period of account.

The calculation of tax-EBITDA is, in practice, going to be a time-consuming process. Non-trading debits and credits will be set out in the corporation tax computation which will assist in part in determining tax-EBITDA, though the granular detail may need more intricate analysis. However, there is no current requirement to separate out any trading loan relationship debits or credits, derivative

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