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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Other tax rules on corporate finance: securitisation: periods beginning on or after 1 January 2007: the regulations: the payments condition: the formula


R forms the receipts out of which payments will be made to the persons to whom the securitisation company owes payment obligations. It is the aggregate of

  • the amounts received by the securitisation company in the accounting period
  • amounts that have previously been retained as RA (whether in the current period or in previous periods), but which have ceased to qualify as RA during the period.

The second component of ‘R’ here ensures that amounts retained in ‘RA’ as a reserve and then ceasing to be needed for those purposes do not escape the application of the payments condition forever. In practice, the requirement for such reserves to be paid out once they are no longer required will normally be satisfied automatically under the terms of the relevant documentation. This will generally specify that amounts of reserves which become surplus during a payment cycle will be included in amounts that are subjected to the priority of payments on the next payment date. Such surplus amounts will be added back to ‘R’ and then paid out (as ‘P’) on that date in accordance with the priority of payments. (CFM72510)


P is the aggregate amount of payments out in the accounting period and the following 18 months. The payments out may be from one company to another in the securitisation chain, or out to the bond holders in accordance with the relevant documentation (CFM72510). In the case of an asset-holding company the payments may be payments of purchase price to the originator for the assignment of the securitised assets, or payments to subordinated lenders, hedge counterparties, servicers and other service providers and third parties. The payments will be made according to the detailed priority of payments. The 18-month period is to allow time for payments to be made in accordance with the relevant documentation. In the vast majority of cases payments will be made well within this time and it is very unlikely that the documentation for a genuine securitisation company would fail to reflect the part of the condition referring to the 18-month period.

To avoid amounts being double counted or omitted, P excludes amounts already taken into account under the regulations in a previous accounting period, and includes amounts paid in previous accounting periods but not taken into account. In practice, such amounts will rarely occur.

The question may arise as to whether dividends paid by a securitisation company can be included in ‘P’. This may vary, depending on the circumstances. If a securitisation company pays dividends out of amounts that have been included in its ‘RP’ for any period, such dividend payments will not be capable of being included in its ‘P’ for that or any other period. (This is necessary to prevent double counting of the same amount as ‘RP’ and then as ‘P’.) However, in other cases, dividend payments by a securitisation company will be capable of forming part of ‘P’ for a relevant accounting period.


RA is the aggregate of the amounts reasonably required to be retained to provide against losses or expenses, or to maintain or enhance the securitisation company’s creditworthiness, which have not been counted in a previous accounting period. CFM72530 gives examples of the types of reserve that will be accepted as ‘RA’.


RP is the amount of the company’s retained profit (CFM72580).

Dividends received by a securitisation company will be included in R. Such dividends received may or may not as such be specifically included in the company’s retained profit. If the dividends received are as such included in RP, there will be no need for the company to pay out a corresponding amount in order to satisfy the payments condition. If the dividends received are not as such included in RP the company will need to pay out a corresponding amount within the requisite period in order to ensure that the payments condition is satisfied (after allowing for the retention of RP out of R generally).