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
Replies (11)
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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.
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.
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.
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.
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!
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...