BKLM810000 - Definitions: equity and long term liabilities

Liabilities - Paragraph 75(1) (a) of Schedule 19

A liability can only be long term if, at the end of the chargeable period, an entity has an unconditional right to defer settlement of the liability for at least 12 months after that date.

Where a liability contains certain provisions that could trigger an early repayment of the liability in the future (for example a default or breach of covenants by the entity) such provisions are ignored if those provisions have not been triggered at the end of the chargeable period.

Where part of a liability falls due more than twelve months after the end of the chargeable period, then that part of the liability is considered to be long term. Any part of the liability falling due within 12 months is short term.

Derivative contracts – Paragraph 76A

For chargeable periods ending on or after 1 January 2015, derivative contract liabilities are prevented from being long term liabilities.  Therefore any un-netted derivative contract liabilities are deemed to be short term liabilities.

‘Derivative contract’ has the meaning given by international accounting standards.

Intra-group liabilities - Paragraph 75(1)(b) and 75(2)

Where there is a liability from one member of the relevant group to another member of the relevant group that meets the condition in paragraph 75(1)(a) it will only be a long term liability for the purposes of the bank levy where an officer of HMRC is satisfied that those liabilities are externally funded by equity, excluded liabilities, or long term liabilities.

Where an intra-group liability has been treated as Tier 2 capital by the PRA, HMRC will accept that this is a liability that is funded externally as set out above.

Equity - Paragraph 74

All equity is long term for the purposes of the bank levy.