5th October 2021
Certain anti-money laundering (AML)-regulated entities will be required to pay a new economic crime levy from 2023. Our financial services experts explain the latest developments and what businesses need to know.
The government announced in 2020 that it would introduce an economic crime levy to raise a targeted £100 million to fund new action to tackle money laundering and help deliver the reforms committed to in the 2019 Economic Crime Plan. The mandatory levy would be raised from businesses in the AML-regulated sector.
Following a consultation, the government has now published its response and draft legislation with the aim of finalising the legislation by the Autumn Budget on 27 October 2021.
Payment of the levy will start in the year beginning 1 April 2023.
The funding will be used to support AML initiatives, although no specific proposals have been announced. It will not be allocated to fraud prevention or other economic crime initiatives.
We set out below the key points about the levy as it is currently proposed. These are subject to confirmation of the legislation in its final form.
The levy will be charged on all businesses carrying on activities which are regulated for AML purposes in accordance with regulation 8(1) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, including credit and financial institutions and certain professional advisers. The levy will apply even if AML-regulated activities are only part of the business’ activities.
Small businesses – as defined below – will be exempt from the levy and reporting obligations.
The final amount of the levy is to be confirmed but the government says it will be a stated amount which will vary according to whether the business is a small, medium, large or very large business. Although the final amount of the levy for each level has not been set, it will be within the ranges below which depend on the amount of the entity’s UK revenues for the relevant year as follows:
The government has decided not to base the levy on a percentage of relevant revenues, which was one of the options originally considered.
The relevant revenues for the calculation of the levy are the UK revenues of the entity which carries on the AML-regulated business.
The revenues are based on a calendar year beginning 1 April with apportionments being made where the entity’s accounting period does not correspond with that year.
The revenues are essentially the turnover of the entity for accounting purposes together with any amounts not within turnover which are recognised as revenue under GAAP in the entity’s profit and loss account or income statement.
For a UK resident entity carrying on a business within and outside the UK, revenues attributable to a permanent establishment outside the UK are disregarded.
The government has considered whether the revenues should include only those deriving from regulated activities but says this will be too complex so all revenues of a regulated entity are included for these purposes. An entity will therefore be assessed by reference to its total turnover even if its regulated activities are a small part of its business.
Revenues are calculated on an entity, rather than a group, basis.
The first levy payment will be based on the revenues for the year 1 April 2022 to 31 March 2023 so will not be due until 2023-24, once the amount of revenues have been determined from the relevant accounts.
The levy will be administered by three bodies: the Financial Conduct Authority where it is the relevant supervisory body; the Gambling Commission for entities in the gambling sector; and HMRC for all other entities.
The operational details of the levy are to be finalised but it is likely that businesses will need to self-assess and report the levy. The levy should be paid within six months of the end of the relevant year.
The government has said that it will respond to comments on the draft legislation in a final version in the Autumn Budget on 27 October 2021.
It is likely that there will be comments from financial institutions in particular on the wide definition of UK revenue, although concerns may be mitigated by the wide banding applied to the definition of a large firm.
Walker Morris will continue to monitor and report on developments.
Our cross-departmental team has 22 industry-leading partners and more than 100 lawyers who provide support to the full range of financial services businesses, including alternative lenders and private equity firms. Please get in touch if you have any queries about the new levy and how it may affect you, or need any other advice or assistance from one of our experts.