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HMRC internal manual

Bank Levy Manual

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HM Revenue & Customs
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Chargeable equity and liabilities: relevant foreign banks: attribution of chargeable equity and liabilities to a branch: determining 'B' the assets of the UK branch (step 2): netting of UK branch assets

Paragraph 25(5) of Schedule 19

Step 2 requires the proportion that the UK branch assets bear to the foreign bank’s total assets to be calculated. In order to ensure that this calculation is accurate, both the foreign bank’s assets and the UK branch’s assets must be calculated using similar principles.

As the netting is permitted in calculating the foreign bank’s assets, it is also needed to be taken into account when calculating the UK branch’s assets. However, it is not possible to net the branch assets in the normal way as the UK branch may not have separate netting agreements and at this stage it has no liabilities attributed to it.

Instead, the net settlement assets of the UK branch are reduced by the same proportion by which the foreign bank’s assets were netted (that is the proportion that were netted when the foreign bank netted its net settlement assets against its net settlement liabilities).

Example A

Step 1. Foreign Bank has overall assets of 1,000 and net settlement assets (NSA) of 200.

Netting involves the NSA being reduced by 200 (i.e. 100% netting reduction). This leaves overall assets of 800.

Step 2. Branch assets = 100 and its own net settlement assets = 50.

Step 3. (Paragraphs 25(5) & (6)) = 100 - (50 x 100%) = 50.

or

Example B

Step 1. Foreign Bank has overall assets of 1,000 and net settlement assets (NSA) of 200.

Netting involves the NSA being reduced by 40 (i.e. 20% netting reduction). This leaves overall assets of 960.

Step 2. Branch assets = 100 and its own net settlement assets = 50.

Step 3. (Paragraphs 25(5) & (6)) = 100 - (50 x 20%) = 90