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HMRC internal manual

Bank Levy Manual

HM Revenue & Customs
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Chargeable equity and liabilities: relevant entities and groups: relevant non-banking groups: joint ventures: introduction

Paragraphs 43 and 44 of Schedule 19

IAS defines a joint venture (JV) as a contractual arrangement whereby two or more parties (‘the venturers’) undertake an economic activity that is subject to joint control.

As the joint venture is not controlled by another entity it will not, under accounting regulations, be part of the venturer’s group for accounting purposes. This means that if it meets the conditions the JV would be either a relevant banking group (under paragraph 4 of Schedule 19) or a relevant entity under (paragraph 5 of Schedule 19) and so potentially charged to the bank levy in its own right.

IAS 31 allows two treatments of accounting for joint ventures:

  • proportionate consolidation, and
  • equity method of accounting.

Proportionate consolidation

Under proportionate consolidation, the consolidated balance sheet of the venturer includes its share of the assets it jointly controls and its share of the liabilities of the JV for which it is jointly responsible.

Where a venturer is part of a UK headed banking group, a building society group, or a stand alone UK bank or building society which applies proportionate consolidation to its JV interests, then its share of the liabilities of the JV will be included within the financial statements that form the basis of the bank levy charge and so no further action is required.

However, where the venturer is part of a foreign banking group or a non-banking group, the liabilities may not be part of the financial statements that form the basis of the bank levy and so, where the consolidated accounts of the group include JV liabilities on a proportionate consolidation basis, they must be brought in separately using the rules outlined within Paragraph 43.

Equity method

Under the equity method of accounting, the investment in the JV is initially recorded at cost with subsequent adjustments to reflect the venturer’s share of the net profit or loss from the JV.

This accounting treatment results in the liabilities of the JV not being consolidated into the venturer’s financial statements. As such the JV liabilities will not form part of the venturer’s group’s chargeable equity and liabilities. The JV will if it meets the conditions be charged to the bank levy as a separate bank or banking group.

Paragraph 43 only applies to foreign banking groups or relevant non-banking groups that use the proportionate consolidation basis of accounting. Where the venturer however applies the equity method of accounting for JVs in their consolidated accounts then no adjustment under paragraph 43 will arise and the JV liabilities are not included in the foreign banking group or non-banking group’s aggregated chargeable equity and liabilities.

Double counting

Where a venturer applies proportionate consolidation, and the JV is separately within the scope of the bank levy, there is a possibility of the same liabilities being subject to the bank levy twice. See BKLM323520 for guidance on how the bank levy rules eliminate double counting.

Where a venturer applies the equity method of accounting for any banking JV interest, there is no risk of the same liabilities being subject to the levy twice, so the double charging rules do not apply.

Future developments

The replacement to IAS 31, IFRS 11 Joint Arrangements, will prohibit the use of proportionate consolidation for joint ventures. When this new standard has been adopted, it is not expected that adjustments for joint ventures will be required for bank levy purposes.