Ramadan is almost upon us and is usually the time when most Muslims pay their zakat for the year. To make things easier for you, we are doing a series on how to calculate zakat on different asset classes.
In this article, we will break down and demonstrate how to calculate your zakat due on any business assets that you may have.
Is zakat due on business assets?
In short, yes. Business assets should be treated the same as assets in general and will incur zakat of 2.5% where appropriate.
You can also deduct any imminent liabilities such as bills and tax from your zakatable assets. In this case, you should only deduct what you will pay over the next month or so.
What zakatable assets do businesses hold?
Your zakatable assets are simply the liquid assets that the business holds. Liquid in this case just means cash or other current assets that are easily converted to cash. This would typically include any cash, stock held for resale, debts that you expect to receive, work in progress and raw materials.
Note: Stock held for resale should be calculated at the resale price, not cost price.
Examples of non-liquid assets would be things like property and goodwill which are not easily converted to cash.
Haseeb owns a clothing business. The business has £2500 cash in hand and £500 of expected payments due soon. It also has clothing stock with a resale valuation of £1000 and £500 worth of raw material. These assets total to £4500. The business also has £500 of bills due in the next month.
If Haseeb wants to deduct the imminent liabilities, then the net zakatable assets are £4500 – £500 = £4000. Applying 2.5% zakat on this works out as £100. Otherwise without deducting the liabilities, the zakat due would amount to 2.5% of £4500 which is £112.50.
If you run a startup business where you have raised external capital, then you should look at this article.
If your business has significant loans – you do not need to pay on those loans – they are the responsibility of your creditor as he actually “owns” the money.
Where to calculate your zakat
So there we have it. Here is a simple and easy way to calculate your zakat using our comprehensive zakat calculator.