D1.1415 Corporate interest restriction—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 principles1.
Aggregate tax-EBITDA is intended to represent only that amount of the group's income that is subject to tax in the UK, and 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.
While the tax-EBITDA of an individual UK group company can be negative, a group's aggregate tax-EBITDA is subject to a floor of zero2.
The calculation of tax-EBITDA commences with the taxable profit (or loss) figure. Amounts in the table below are also excluded or 'not brought into account in determining tax-EBITDA' which means those items must be added-back or deducted from taxable profit/(loss) as appropriate3—