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EBITDA and R&D

do I exclude tax credits?

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Hi, I have a client who has asked for the EBITDA for the last three financial years, but I am a little confused about the R&D credits they have received.

I am working from the net income, I have added back the interest, depreciation and amortisation.

When it comes to tax, do I add back R&D credits received? my initial feeling is not to.

In one year a profit was made but no tax paid because of the credits received. If I do not add back the tax credits do I still need to add back the tax that would have been payable if there was no R&D credit?

No R&D has been capitalised 

Any help is very much appreciated 

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ALISK
By atleastisoundknowledgable...
14th May 2021 18:03

I would exclude the R&D tax credit in the EBITDA calculation - it has tax in its name. I don’t understand why you wouldn’t.

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Replying to atleastisoundknowledgable...:
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By harpsong
14th May 2021 18:06

I don't necessarily disagree with you, but Interest income has interest in the name, but you don't exclude it. you only add back interest expenses.

I thought for EBITDA you add back expenses not incomes.

Also I believe you don't add back other taxes such as council taxes etc

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Replying to harpsong:
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By paul.benny
15th May 2021 15:00

If you're going to only add back interest expense, you could boost EBITDA by borrowing to the hilt and putting the money on deposit. I don't think so.

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Psycho
By Wilson Philips
15th May 2021 15:19

Are we talking about SME credits or RDEC credits?

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Replying to Wilson Philips:
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By harpsong
15th May 2021 15:28

both

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Replying to harpsong:
Psycho
By Wilson Philips
15th May 2021 15:35

In which case I’d say that you exclude the SME credit as it is shown as part of the tax charge, but include RDEC, as it is included in other operating income. Other opinions may be available.

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Melchett
By thestudyman
16th May 2021 08:53

Have you only got net income? Surely would be easier to get the operating income figure (sales - operating expenses) and just add back depreciation and amortisation, and you don't need to think about interest and tax.

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By harpsong
16th May 2021 09:08

To he honest I've come to the conclusion that it isn't covered by any accounting standards and can vary depending on who I calculating it or who you ask. So as long as there is some kind of basis behind it it is EBITDA

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By tom123
17th May 2021 11:51

In my amateur view, the whole EBITDA thing arose 'because' people did not like the results accounting standards gave.

Hence, looking for an accounting standard on said thing may well be tricky!

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By johnt27
18th May 2021 09:17

The IASB have a staff paper on the presentation of EBITDA and the variations employed by different companies. It's very common to see EBITDA reporting in plc accounts, subject to IFRS, hence the paper.

It's pretty clear to me what should be presented for EBITDA, it is, afterall, in the name. So remove all tax figures (plus or minus) and interest figures (plus or minus) and leave in RDEC, unless you wanted to present an adjusted EBITDA, in which case you can go with any figure...

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Replying to johnt27:
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By harpsong
18th May 2021 09:27

Thank you that is very helpful

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