The economic crime levy – impact on professional practices

The Economic Crime Levy, a new tax on medium and large professional firms and financial institutions was confirmed in the Finance Bill in October. It will apply to the anti-money laundering (AML) regulated sector as defined within the Proceeds of Crime Act 2002, which includes lawyers, accountants, insurance companies and banks.

Firms captured by the levy will be required to pay an annual fixed fee based on the turnover ‘size’ band that they belong to, determined by their UK Revenue, with fees increasing by size. Those firms determined to be small will be exempt.

The levy is intended to raise approximately £100 million per year to help fund AML reforms. Its collection, from 2023/24 (April 2023-September 2023), will be the responsibility of HMRC, the Financial Conduct Authority and the Gambling Commission.

Who will pay?

All entities subject to the Money Laundering Regulations (MLRs) and with UK revenue over £10.2 million will be subject to the levy.

The fixed fee levy to be paid by entities will be based on their UK Revenues, according to their size - medium (£10.2 million to £36 million); large (£36 million to £1 billion); and very large (more than £1 billion) sized entities.

How much will the levy be?

An in-scope entity will pay a fixed fee based on the UK revenue it has made during its period of accounts that end in the levy year.

The level of fixed fees included in the Finance Bill are:

• Medium entities - £10,000
• Large entities - £36,000
• Very large entities - £500,000 (£250,000 for accounting periods ending before 1 April 2024).

What are UK revenues?

For a UK resident entity, revenue is all of the entity’s revenue, less revenues attributable to permanent establishments outside the United Kingdom. The legislation refers to a Generally Accepted Accounting Practice (GAAP), so could be UKGAAP or International Financial Reporting Standards (IFRS).

When will the levy need to be paid?

Each ‘levy year’ will run from 1 April to 31 March and the first levy year will begin on 1 April 2022.

The levy will be collected by the three statutory AML supervisors – HMRC, the FCA and the Gambling Commission and entities will be required to make their levy payments within six months of the end of each levy year. For example, in the first levy year (2022/23) entities will need to pay the levy at a point in the period 1 April 2023 to 30 September 2023 to be determined by their supervisor.

Is the levy a tax-deductible expense?

No. The legislation specifically stipulates that the levy is not to be a tax-deductible expense.

What year-end turnover determines your first levy?

Your firm’s revenue for the accounting year ending in 2022/23 will determine its size and therefore the initial levy.

Practical considerations

• Do your systems allow you to identify and distinguish between UK and Non-UK Revenues?
• Entities with revenues near threshold limits may fall in/out of scope, or have substantial changes in the levy suffered. (£10.2 million; £36 million; £1 billion) These will need to be monitored, especially for those with a 31 March year-end as they will have little time to determine their revenue and thus levy.
• The levy will apply an entity level rather than group basis.

For more information on the issues discussed in this article or to discuss your firm’s circumstances, get in touch with Ryan Ketteringham or your usual Crowe contact.