CFM72590 – Corporate Finance Manual – HMRC Internal Manual


The corporate tax charge: the formula: ‘D’

D is the lesser of:

  • the sum of the dividends paid by the securitization company during this financial year and any previous financial year minus:
    • retained earnings for the period
    • amounts previously taxed under Regulation 14
    • amounts previously counted as ‘DS’
    • dividends paid before the company was subject to the securitization regime,
  • and Nile.

What does ‘D’ do?

‘D’ is the ‘catch-up load’. Normally, the company’s taxable profit (“RP”) will only include the small amount of cash retained by the company, which it will pay out as dividends, usually to the trust. The subtraction of DS, as explained above, avoids double counting of amounts taxed in the same way as RP in other securitization companies in the chain.

‘D’ supports amounts that escaped being included in ‘RP’, when they were distributed. For example, a business may retain an amount in breach of the normal terms of the payment term because (say) the transaction documents accidentally did not make provision as to how that amount was to be applied. In this case, the “reasonable excuse” defense would apply (CFM72550). If the company later distributed this amount as a dividend, the amount of this dividend would be included in “D”.

To avoid double counting, “D” excludes amounts already taxed as profit of the securitization company in the current period or any prior period, or intercompany dividends (again, already taxed as profit of the securitization company) and corporate dividends paid out of profits prior to the securitization scheme. . If the calculation of ‘D’ gives a negative number, it is ignored.

Note, in relation to this example, that the definition of “retained earnings” in Rule 10 is designed to capture all amounts that are retained by a securitization company as earnings. The effect of Section 10 is that any retention (beyond the period permitted by the Payment Term) of amounts other than “RP” and “RA” will result in a breach of the Payment Term and therefore prevent the Company to qualify as a securitization company for the relevant accounting period and at any time thereafter. “D” therefore covers the case where a company does not breach the condition of payment but has nevertheless withheld amounts which were not included in RP or RA and which were not taxed.


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