Zakat and Tax – Your Questions Answered
I have a tax bill that is due in December and another due in January. I have already set aside the money for this. Do I need to still pay Zakat on that?
In this case, since this liability is known and is due for payment, albeit the deadlines being in 5-6 months, it is permissible for you to deduct this amount from your other assets before you calculate your Zakat.
Of course, the safer thing to do is to include this money in your calculation, especially if you don’t feel that paying Zakat on it will in any way delay or impede you in clearing the liability when the time comes. But as mentioned, the deduction would be permitted in this case.
I have a company and therefore tax is not deducted till the end of the financial year. I put 20% corporation tax to one side myself, does Zakat need to be calculated on this or is this classed as a debt?
When one’s Zakat anniversary occurs, unpaid tax in relation to a previous financial year can be deducted from one’s cash balance prior to Zakat being calculated.
However, any money being saved to pay for taxes in relation to the current financial year cannot be excluded.
The reason for the above position is that the tax liability for the previous year is known and cannot change. It is a fixed liability now that must be paid. By contrast, tax in relation to the current financial year is neither known precisely in terms of its overall amount nor is it due to being paid.
So to summarise, let us say that one’s Zakat is due today in May 2021. Tax in relation to April 2020/2021 financial year can be deducted from one’s assets prior to calculating Zakat.
But estimated tax in relation to the April 2021/2022 year, or money that has been put aside since April 2021 in relation to one’s expected tax liability, should not be deducted for Zakat purposes.
The taxes one pays here in the UK include Income Tax, Council Tax, Vehicle Excise Duty (known commonly as “road tax”) and so forth. Should these be deducted from the total annual income or not included in my Zakat calculation?
One should not deduct taxes before calculating Zakat unless these taxes are overdue and are required to be paid immediately to the government.
In general, taxes that we pay to the government are in no way a substitute for Zakat because Zakat has to be distributed to specific groups of people as specified by Allah in the Qur’an.
On my Zakat anniversary, can I deduct the tax that is due for that year?
You can make a deduction regarding the liability related to the previous tax year. As an example, if your Zakat is due today you can deduct the tax that you need to pay for the previous tax year.
And Allah knows best!
Approved by Mufti Amjad 6th August 2023
Find out more about how your Zakat can help Muslims struggling through the cost of living crisis