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HMRC internal manual

Bank Levy Manual

Chargeable equity and liabilities: netting: conditions

The legislation permits a principles based approach to netting which builds upon the regulatory treatment under the Basel II framework and the conditions for netting under US GAAP.

There are three conditions which must all be met:

  1. the liabilities and assets that are recognised on the balance sheets of relevant members must be with the same counterparty (or members of the counterparty’s group)
  2. the liabilities and assets must be covered by the same netting agreement (see BKLM352000) which the entity has a well founded legal basis for concluding is legally enforceable and effective on the insolvency of the counterparty, and
  3. the counterparty must either be a third party or group company whose liabilities are not subject to the bank levy.

For guidance on the netting calculation, go to BKLM353100.