What counts
The National Zakat Foundation's business guide lists four kinds of zakatable business asset: cash owned by the business, cash receivables (money lent by the business), trade receivables (unpaid invoices for goods and stock), and stock or inventory bought to resell.
What does not count
Money owed to the business for services, prepaid expenses, fixtures and fittings, property, plant and equipment, and intangible assets such as copyright, trademarks, patents and goodwill are not zakatable. Equipment and premises are tools of the business, not wealth held to grow.
Intention decides
All four schools agree that a business asset is only zakatable if the owner intends to resell it. Something bought with a clear intention to resell is zakatable whenever it is eventually sold. Anything other than gold, silver or cash bought for personal use is not. An asset bought with no clear intention, or for personal use with a thought of selling only if the price rises, is not zakatable either. An asset bought to resell but leased out in the meantime stays zakatable while the intention to sell remains.
Valuing your stock
Value stock at its retail price on your zakat anniversary, not what you paid. Dead, damaged or undelivered stock and work in progress are valued as they stand. The guide gives examples: jewellers value gold, silver and jewellery at retail price; restaurants value ingredients at current worth, or cost if that cannot be found; property developers value property bought to resell at current market price; grocers value produce at current worth.
The most accurate method is a stock count on your zakat date. If that is impractical, use up-to-date records of transactions and stock. As a last resort, use the latest balance sheet; because it shows cost rather than retail value, the guide suggests adding your gross margin percentage (gross profit divided by net sales) to the stock figure, and paying a little extra to be safe.
Debts the business can take off
You may deduct debts payable in full within 12 months, 12 months of instalments on long-term debts, and arrears, but only the non-interest part. You cannot deduct future expenses such as next month's rent, long-term debt not due in the next 12 months, or interest. The guide advises deducting only what is necessary, for example where paying zakat would stop the business meeting a debt.
Who pays, and paying in kind
A sole owner pays zakat on all of the business's zakatable assets. In a partnership each partner pays on their own share, though one partner may pay for the others with their consent. The Hanafi school allows zakat to be paid in kind, for example in stock; the other schools disallow it or allow it only in some situations.