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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate finance: securitisation: periods beginning on or after 1 January 2007: the payments condition: other points

The payments condition: other points

Foreign exchange differences

It will be common for the amounts received by the company to be in one currency and paid out to its creditors in another. A company may also hedge its receipts in one currency by means of a swap into another currency. All amounts received and paid are translated into the company’s functional currency using the spot rate on the last day of the accounting period. This will include all amounts paid and received by the company under (say) a currency swap providing for exchanges of interest rate amounts and principal amounts in different currencies.

The sterling equivalent of all receipts and payments in the same currency will be calculated at the same rate when applying the payments condition in relation to any given accounting period. Thus, payments in the period of 18 months after the end of the accounting period for which the payments condition is being applied (the ‘relevant period’) will also be translated at the year end rate for the relevant period. For the purposes of the payments condition such payments will be compared with amounts received in the same non-functional currency during the relevant period, also translated at the year-end rate for the relevant period. Thus, no company should fail the payments condition simply because of foreign exchange differences.

The Regulations do not specifically provide a translation rate for non-functional currency amounts which are retained as, or cease to qualify as, ‘RA’. In practice, when applying the payments condition to an accounting period:

  • non-functional currency amounts which are retained as RA during the accounting period or within 18 months thereafter will be translated (like payments) at the year end rate for the relevant period;

non-functional currency amounts which are included in ‘R’ because they have ceased to qualify as ‘RA’ during the accounting period (see CFM72530) will be translated (like receipts) at the year end rate for the relevant period.


Regulation 11(6) covers the first period in which the company is subject to the regulations. For the first AP, ‘R’ (the receipts) includes an amount calculated as if the regulations had applied in the previous AP. It is in essence the surplus cash from receipts in the year after payments in the year (not the following 18 months) and permitted reserves. In addition, ‘R’ for the first AP is amended to include amounts released from the previous AP’s reserves. Both of these adaptations are necessary to ensure that the payments condition is not failed because payments are used to meet commitments from a period before the regulations applied.