Comprehensive Guide to Using a Zakat Calculator in the UK
Introduction
Zakat is the third pillar in Islam and plays a significant role in the way Muslims live and conduct their financial affairs. The recipients of zakat are a very specific group of people as outlined in the Quran, and there is a specific calculation involved.
Our online zakat calculator assists with calculating the amount of zakat that is owing.
Understanding Zakat And Its Obligations
WHAT IS ZAKAT?
The word zakat means growth and purification in Arabic and refers to the mandatory obligation to give a portion of wealth accrued to charity. Zakat is a fundamental obligation for all Muslims who meet the criteria, and its purpose is to purify wealth and create economic equality and enhance social welfare.
According to Islamic teachings, zakat is a fundamental act of worship. The Quran (2:110) states: 'Establish prayer and give zakat'
WHO NEEDS TO PAY ZAKAT?
Muslims who are required to pay zakat must first understand if they have accrued the minimum amount of wealth required before they become eligible to pay zakat. This is known as nisab and this is worked out based on the equivalent of 85 grams of gold or 595 grams of silver.
Those eligible to pay zakat include the following:
- Adults who have reached puberty and have wealth over the nisab threshold.
- Adults who have full mental capacity.
WHAT ASSETS COUNT TOWARDS ZAKAT?
Zakat is payable on different types of wealth:
- cash
- silver
- gold
- business assets
- investment income
- agricultural produce.
When And How Much Zakat To Pay
Zakat is due on wealth that you have been in possession of for one lunar year. It's also important to note that you can deduct immediate debts from zakatable wealth (see below).
You can pay zakat at any time of the year through instalments or in one lump sum.
Calculating Zakat Step-By-Step Using A Zakat Calculator
Muslims are expected to pay 2.5% of their zakatable wealth every year. Follow these steps to work out how much zakat you need to pay:
- Determine your zakatable wealth total by adding up your assets and deducting immediate debts.
- Ensure that you meet/exceed the nisab threshold
- Apply the 2.5% rule
- Use the online zakat calculator to work out what you need to pay
Always visit a reliable zakat calculator website.
Deductions And Liabilities
There are certain debts and liabilities that be deducted when making your zakat calculation.
The following deductions are allowed:
- short term debts such as credit card balances and small loans that become due in the zakat year.
- for long term debts such as mortgages you can only deduct the payment owing in that zakat year.
- living expenses including bills, rent, good costs, transport.
- unpaid wages to employees.
- business liabilities for the zakat year.
Please note that future debts and expenses are not deductible.
Zakat Payment And Its Impact
Zakat is more than a financial payment, it goes beyond wealth distribution into the realms of spiritual growth, economic justice and fulfilling an important religious obligation.
Paying zakat on time fulfils an essential Islamic obligation and strengthens the relationship with Allah.
Timely payment of zakat leads to increase in blessings and purification of our wealth.
How To Pay Your Zakat
Zakat can be paid in different ways. You can pay zakat direct to individuals who are eligible to receive zakat. Zakat can also be paid to charities and global zakat funds.
Many Muslims choose to pay zakat online by utilising online zakat calculators.
Receiving Zakat
There are eight groups of people to whom zakat can be given:
The needy (this includes people whose earnings fail to cover basic needs such as food, home, water, clothing)
Those in poverty (who have little to no personal belongings and no means of earning a living)
Those employed to administer zakat monies
The wayfarer
People whose hearts have been reconciled to the faith In the cause of Allah (SWT)
People in debt
People in bondage
Recipients of zakat should not be members of your immediate family such as your spouse, parents or children. Other non-immediate relatives can be recipients of your zakat payments.
Many people give to charity throughout the year, for any donation to qualify as fulfilment of the zakat obligation, then there must be an intention to give the money as zakat.
Common Questions And Expert Advice
WHAT IS NISAB?
Nisab is the minimum amount of wealth you need to have before you become eligible to pay zakat. Typically nisab is the equivalent of 595 grams of solver or 85 grams of gold.
DO I PAY ZAKAT ON MY HOME?
Zakat is not payable on your primary home. If you have rental properties then zakat is payable on the income generated.
CAN I GIVE ZAKAT TO MY FAMILY?
You cannot give zakat to immediate family, ie those already dependant on you such as your partner and children. You can pay zakat to extended family members if they are eligible.
ARE ONLINE ZAKAT CALCULATORS ACCURATE?
Yes, as long as you insert the correct information based on your personal circumstances then zakat calculators are an excellent way to calculate your zakat.
IS ZAKAT PAYABLE ON MY RETIREMENT SAVINGS?
If you have full access to these savings and you meet the nisab threshold then zakat is payable.
WHAT IF I FORGET TO PAY ZAKAT?
Use an online zakat calculator to calculate what you owe and pay your zakat as soon as you can.
IS ZAKAT PAYABLE ON STOCKS AND SHARES?
Yes, if the value exceeds the nisab threshold then zakat is payable.
SHOULD NISAB BE CALCULATED ON GOLD OR SILVER VALUES?
In the United Kingdom you can use either the gold or silver value. Many scholars believe that using the value of silver is preferable as it means the amount of zakat increases. If you have assets that mainly consist of gold then it is sensible to use the gold nisab.
WHAT IS THE ZAKAT YEAR?
The zakat year begins on the date on which you first possessed the wealth that took you over the nisab threshold. This will be the start of your zakat year. The zakat payment will therefore become due when the year has elapsed.
HOW DOES ZAKAT APPLY TO YOUR INVESTMENTS ON THE WARDUS PLATFORM?
For all of you that pay zakat, it would be on the total outstanding amount payable to you from your investments via Qardus. The investment is based on a financing arrangement which involves the buying and selling of commodities, and therefore, we believe that these assets are zakatable in nature. Therefore, investors who pay zakat would use the capital plus the profit due to them to calculate the amount of Zakat payable.
Please note that Qardus does not provide tax or other financial advice and that if advice is needed, you should consult an appropriately qualified professional.
Conclusion
Calculating zakat accurately and paying it in a timely manner ensures that it reaches the most vulnerable in society. Paying zakat fulfils one of the core pillars of Islam.
Using an online zakat calculator not only ensures the payment you make is calculated accurately, it saves you time and helps you to make the sometimes complex set of calculations.
Zakat calculators also guide you to eligible recipients and make it easier for you to track your zakat payment history and accountability. The calculations eradicate errors and provide an audit trail. If you have any specific questions about your zakat payment, always remembers to consult with expert scholars.
Use the Qardus zakat calculator here.
Please note that the prices information and values mentioned above are for example purposes only. For an accurate figure of the zakat you are liable to pay then it is always best to use the zakat calculator, and also conduct your own research and obtain qualified advice where required.
Qardus do not offer financial or tax advice and if advice is needed, this should be sought from a qualified professional.
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Commodity murabaha (CM) is a popular structure for Sharia-compliant working capital financing in the UK. The diagram above illustrates the steps involved in a typical CM financing transaction, on the assumption that the SME Customer is obtaining cash flow financing and requires a £100,000 facility from using the Qardus platform. The structure has been developed based on AAOIFI Sharia Standards and the steps involved are as follows:
- A special purpose vehicle (SPV) acquires non-precious metals from Broker 1 on the London Metal Exchange (LME) for value equal to the financing amount (i.e. £100,000). The ownership of the metals transfers from Broker 1 to the SPV.
- The SPV immediately sells the metals to the SME Customer at an agreed pre-disclosed mark-up of for example £110,000 (i.e. £100,000 + £10K profit), but on deferred payment terms. The full £110,000 is therefore payable by the SME Customer over an agreed term (i.e. the financing term).
- The commodity sale is documented in the transaction request and form of offer letter and acceptance of the Commodity Murabaha Agreement. The SME Customer returns to Qardus signed copies of the transaction request and offer letter and acceptance.
- The SME Customer appoints Qardus as its agent to sell those metals, on the SME Customer's behalf, for £100,000 to Broker 2 on the LME.
- This appointment is documented in the form of an instruction letter in the Commodity Murabaha Agreement.
- Broker 2 pays Qardus (in its capacity as agent for the SME Customer) £100,000 for those metals.
- Qardus remits £100,000 (less any deductions specified in the facility agreement) in cash to the SME Customer. The SME Customer has an obligation, under the terms of the facility agreement, to pay £110,000 to the SPV in instalments (i.e. the financing term).
- Qardus as the designated security agent in the Commodity Murabaha Agreement obtains, amongst other security a debenture over any property or a personal guarantee from the SME Customer.
Introduction
Islamic banks are able to offer their customers financial services that are compliant with the principles of Islamic finance. Digital banking enables banking systems to be personalised, informative, and efficient. Users are able to quickly access information that is relevant to their account and spending habits. It can take seconds to access your account and your credit and debit balance.
Personalising services via digital banking means customers are more aware of their financial dealings and more able to control their financial habits.
Islamically, knowing exactly how much money you have in your account means you are less likely to overspend, or get into debt. Where in the past customers would have had to attend a bank or a cash machine to find out their account balance, now with digital banking the enquiry can be made at any time and anywhere from a mobile phone.
WHAT IS DIGITAL BANKING?
Digital banking is when a bank or financial institution offers its customers financial services via digital platforms. Customers are now able to access information via their mobile, desktop, accessing their bank's website, and using various apps.
One of the aims of digital banking is to offer a seamless service to people and also to ensure there is financial inclusion when it comes to managing money. Banks want to operate in a more efficient way and make banking more accessible to their clients.
For the bank, it means that they have fewer operational costs as they can rely on digital platforms to offer their services and products.
Digital banking is used widely across the globe, and it means that communities that formerly may not have been served by banking sectors now have more access to basic financial services. Digital banking relies heavily on technology and the technological advancements that have taken place over the last few decades.
Benefits Of Digital Banking
There are many advantages of using digital banking, they include the following:
- greater efficiency
- more seamless service
- enhanced customer experience
- increased transparency
- intuitive platforms
- ease access to information
- no need to attend banks in person
Types Of Digital Banking
- Business to consumer services
- Crowdfunding
- Zakat payments
- Micro-financing
- Interest free loans
- Family banking
- Social banking
- Collections of payment
Islamic Finance And Banking
As digital connectivity and technology continues to grow, the demand for digital services is increasing. At the same time, the Islamic banking industry is also growing and working hard to keep up with digital innovations.
With both industries growing at pace simultaneously, Muslim consumer needs have driven the need for digital solutions within the Islamic banking sphere.
Muslims represent almost 25% of the population of the world and Islam is the fastest growing religion. This means there is already a large demand for digital Islamic services. In addition, the Muslim population has a strong youth demographic who are tech savvy, educated, and aware of how they want to manage their money.
This demographic is also keen to have increased information and transparency when it comes to banking services.
The Islamic economy has moved hand in hand with halal infrastructure. This is definitely the case when it comes to Islamic finance and the banking infrastructure to support it.
There is an increased focus on ensuring that payments and financial transactions are interest free and free from speculation and other haram activities.
Muslim consumers are digitally aware and connected. They are also educated on the principles of Sharia law which deem transactions halal or haram. Their Muslim identity is an important part of the lifestyle and the choices they make.
It is not only Muslim countries that are developing their Islamic finance infrastructure. The Islamic finance industry is thriving in the UK, the US and the rest of Europe. One example is the Port of Rotterdam which has created what is known as a halal distribution park to cater to European Muslims.
Let's examine the fundamental principles of Islamic finance:
- No interest
- No ambiguous terms or uncertainty
- Purification: a requirement that banks ensure money generated is Sharia compliant and separate from non compliant income
- Ethical and socially responsible transactions and investments
- Asset backed systems: not seeing money as a tradable commodity but linking it to real economic activity and assets.
Ethics And Islamic Banking
With the ongoing recession and global financial crisis, there is also an increasing and growing demand for more ethical and socially responsible banking options and services.
Islamic finance services, together with Islamic digital banking services, are well positioned to offer ethical practices and options for consumers. Islamic finance is centred on ethics and offering an alternative system that strengthens real economy sectors.
What Islamic finance also requires is increased due diligence and transparency. In order to be Sharia compliant banking services must comply with the rules of Islam and must be vetted for compliance.
Digital Islamic Economy
The digital Islamic economy is a fast growing industry. The rise of Islamic lifestyle magazines and online platforms means there is a demand for Islamic content and services. For example, the modest fashion industry has become a big player in the fashion sector and has seen incredible growth online.
With over 1.7 billion Muslims in the world, the digital services landscape has the potential to grow and accelerate fast. With it comes an emerging digital Islamic economy that is focused on the consumer needs of Muslims.
Commercially and digitally, Islamic finance is one of the most attractive vertical sectors. However, it's success will need to ensure compliance with Islamic finance principles and Sharia rules.
In terms of the future and the potential of Sharia compliant digital banking, the opportunities are limitless.
There is support from individuals, companies and investors for further development of digital banking services. One of the challenges for digital banking will be to ensure that any product or service that markets itself as compliant will require additional and ongoing due diligence.
Whilst application software (app) programmes will continue to be developed to facilitate compliant investment, saving and money management options.
Digital banking platform Algbra did a survey and found that out of the 1.6 billion unbanked adults in the world, 800 million are Muslims. This is an alarming figure, but it is hoped that digital banking will be more inclusive than conventional banking methods.
Whether it comes to loans, savings, personal or business accounts, or investment, digital banking will ensure more marginalised groups are able to partake.
Developing a robust digital banking service should be a high priority for Islamic banks. In turn, this will lead to enhanced Sharia compliant tools and services.
CAN MUSLIMS INVEST IN GOLD?
The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is widely recognised as a global leader of maintaining Islamic finance standards.
The rulings of the AAOIFI are accepted across Islamic markets. the AAOFI has led to many Islamic finance and Sharia-compliant gold products and services including investment options and accounts, EFTs, gold saving plans, and spot contracts.
IS INVESTING IN GOLD HARAM IN ISLAM?
According to the AAOIFI, there are certain standards that should be met when any Muslim considers investing in gold. These include the following:
- Gold should be traded on a hand to hand basis
- Gold can be jointly owned
- Gold ownership can be constructive or physical
- In each case, the gold should be completely allocated (with no ambiguity re ownership)
- Allocation can take place through settlement, certification, confirmation, or receipts.
Under Sharia rules, gold trading is haram if the following criteria are not met:
- the exchange of any metal including silver for silver and gold for gold must ensure that they are of equal weight and worth
- there must be an on the spot cash payment (no future options)
It is also very important to note that there can be no element of interest (riba) in the trade. When it comes to futures and options riba can sometimes occur in the deferment of the delivery or in the payment structure. To ensure riba is avoided, make sure the deal or transaction takes place and completes on the spot
WHEN IS GOLD TRADING NOT HALAL?
It is important to remember that whilst gold trading is deemed to be halal, speculative trading or gambling of any nature is not permissible in Islam.
For example, gold trading that involves futures and options contracts which usually involve elements of speculation could be deemed to be haram.
Under Sharia rules, a key component of compliance when it comes to investment and trading is that the asset should be physically backed. This is easy to achieve with gold as it is a real physical asset.
However, Muslims need to be aware of the Islamic finance rules relating to investment and trading, and the fact that gold is deemed to be a rabawi item.
This means that gold in itself cannot be traded for speculative purposes or future profit. It is halal to use gold as medium of exchange and a form of cash. Also, it is permissible to own gold as jewellery.
HOW CAN I INVEST IN GOLD IN A SHARIA COMPLIANT WAY?
To invest in a Sharia-compliant way you need to make sure that you comply with Islamic finance investment principles. You have to ensure that any investment portfolio is secured and managed in the correct way. Consult knowledgeable experts and ensure you understand Islamic finance rules.
Make sure of the following:
- Use a credible and acceptable form of payment. This could include bank transfer, bankers draft, cash, coin, or Sharia-compliant credit.
- The gold must be physical in the form of jewellery, gold coins, or bars.
- delivery and completion of the transaction and finance should occur on the spot
- Work with reputable agents who have verified transactions and parties and can validate the Sharia compliancy. In the UK and worldwide there are many banks and agents who are certified to work within the Islamic finance market.
- Whether you are a seller or a buyer, make sure you undertake your own due diligence and the terms of any investment are clear before you sign up to deal.
Managing and investing wealth in a Sharia-compliant way is the responsibility of all Muslims. It is imperative that Muslims ensure that as customers, sellers, investors, and buyers they are working towards compliance with Islamic rules and learning information about gold trading.
ARE GOLD CHAINS ALLOWED IN ISLAM?
Muslim men are not permitted to wear gold jewellery or adorn themselves in gold in any form. They are allowed to wear silver jewellery or jewellery made using stones.
Muslim women, however, are permitted to wear gold chains and jewellery.
When it comes to white gold, the ruling is the same. It is not permissible for men to wear white gold. This is due to the fact that white gold has high percentages of gold within it. This also applies to gold plated jewellery or any design or jewellery that contains gold as its main component. For Muslim men, it is best to stay away from gold jewellery.
HADITH RELATING TO GOLD?
One of the well-known hadiths relating to gold in Islam is the one relating to the Prophet Muhammad (PBUH) where he states that:
"Gold for gold, silver for silver.... like for like, equal for equal and hand to hand, then you may sell as you wish..'.
This hadith sets out some guidelines for transacting on gold and silver.
IS IT A GOOD IDEA TO INVEST IN GOLD?
There are many a website and platforms available that can provide you with information relating to investments and trading.
Gold trading is halal in Islam, and with gold prices increasing at high rates in the last few years alone, it is always a good idea to invest in gold. When it comes to the actual investment, there are many different options for Muslims looking to invest in a way that is Sharia-compliant and also yields a good return on investment.
Investing In Gold - Tips
There are various ways you can start to invest in gold today:
- look for reputable companies and agencies to use
- hold bullions or coins (or even shares)
- buy gold jewellery
- research and review EFTs and how they work
- avoid any form of riba
- focus on investing in physical gold
- diversify your investments
- consult Islamic scholars
Make sure you understand and make plans for the storage of any gold you buy. It is difficult and risky to store large amounts of gold (or any asset) at home so seek out storage companies who can help you.
HOW PROFITABLE IS GOLD TRADING AND IS GOLD TRADING HALAL?
Gold trading has always been profitable. Whether you trade in person or online, you need to understand that gold is expensive, and so trading and investment in it comes with its own costs. For example, spot price for gold can range between 5-10% so bear this in mind.
The easiest way to invest in gold is to actually buy it. Another great form of gold investment is EFTs. There are a wide range of Sharia-compliant EFTs on the market in the UK, USA and worldwide.
If you are looking at buying bullion and bars then this can be done via companies that can hold the gold asset for you.
IS LEVERAGE TRADING HALAL?
Leverage trading refers to borrowing funds in order the increase or amplify the potential return on any investment. As with any kind of trading, it is deemed to be halal as long as it conforms to Islamic rules about trading.
When you leverage trade you are borrowing cash to exchange with. This comes with greater risk than not borrowing. Is Islam, leverage trading would be deemed to be haram if interest is charged, or if the dealer of the leverage is using it for speculative activities.
As long as you use a halal broker who understand the Islamic finance rules, then leverage trading can be halal. In recent years the Islamic finance sector has created Sharia-compliant services that offer leverage trading or services similar to it.
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