Economic crime levy: Relief for SMEs

Economic crime levy: Relief for SMEs

Revised plans and draft legislation suggest that smaller businesses should be exempt

Economic crime levy: Relief for SMEs

In the wake of the Budget 2020, the government announced the launch of an economic crime levy (anti-money laundering levy) on businesses, to raise £100m per year to fund ambitious reforms as part of the updated Economic Crime Plan 2019-2020.

Levied on businesses that fall under Anti-Money Laundering (AML) regulations, the originally proposed levy would have affected businesses of all scales in all sectors within the scope of the regulations, including the accountancy sector.

Following an extensive industry consultation, the government has now published their revised plans, along with draft legislation, which has incorporated views that smaller firms (those below £10.2m UK revenue) should be exempt from the Economic Crime Levy (ECL).

This news comes as a welcome relief to SMEs and particularly accountants, who will no longer need to grapple with complex levy calculations as well as additional levy costs.

What is the Economic Crime Plan?

The Economic Crime Plan 2019-2020 was commissioned by the Economic Crime Strategic Board to outline strategies to combat financial fraud, money laundering and all forms of economic crime.

The UK is a leading financial centre, driven by its open economy and support for inbound investment, its status as a major exporter and investor, and its readiness to embrace technologies and support businesses doing business.

This same openness also creates vulnerability to economic crime, costing the UK at least £37bn per year, and impacting the economy’s competitiveness, reputation, and institutions.

The Economic Crime Plan, therefore, sets out the strategic vision for minimising criminal activities, stating as follows:

“For the public and private sectors to jointly deliver a holistic plan that defends the UK against economic crime, prevents harm to society and individuals, protects the integrity of the UK economy, and supports legitimate growth and prosperity.”

Rejecting the original proposal

Released for consultation with industry in July 2020, the original ECL ECL consultation highlighted the commitment to initiate a new funding model in the form of a levy paid for by the AML-regulated sector, in order to develop a sustainable, long-term resourcing model for economic crime reform.

HM Treasury highlighted the levy as a method to prevent the full financial liability from being borne by the taxpayer, placing some of the burden on businesses that are exposed to potential money laundering.

In turn, the new levy will be used to fund a number of economic crime reforms, including the Suspicious Activity Report (SARs) reform programme, an expansion of the UK Financial Intelligence Unit (UKFIU), enhancing the Joint Money Laundering Intelligence Taskforce (JMLIT), overhauling Companies House to better enable it to support businesses’ obligations, and launching a new education programme to help tackle the issues of economic crime.

The proposed ECL was opened for industry consultation in July 2020, closing to comments in October 2020. A key concern that was raised by stakeholders, including the Institute of Financial Accountants (IFA), was the potentially disproportionate burden of the levy being paid by SMEs.

In their response to the consultation, the IFA highlighted that while a self-sustaining resourcing model is appropriate, the burden needs to be proportionately applied, and must properly account for risk.

The IFA response highlights that we do not agree with HM Treasury’s statement in paragraph 1.6 of the consultation that it believes it is fair that those whose business activities are exposed to money laundering risk paying towards the costs associated with responding to and mitigating those risks.

The National Risk Assessment 2007 (NRA) identifies the accountancy sector as being at high risk of money laundering. However, other sectors and businesses not in a regulated sector are also at high risk of money laundering such as cash-intensive businesses. It is not clear why these businesses are not in the scope of the levy as it is these businesses that require greater scrutiny by the regulated firms.

It seems to the IFA and its members that this levy is essentially another form of tax on the accountancy sector which is already investing significant resources towards the prevention of money laundering while other sectors that are not regulated and are vulnerable to money laundering are not in the scope of the levy. This does not demonstrate fairness which is the main reason given by HM Treasury for imposing a levy on the accountancy sector.

Levy reforms

In direct response to the contributions of stakeholders, the scope of the ECL has been reviewed to add a simple, but essential clarification: “All entities subject to the Money Laundering Regulations (MLRs) and with UK revenue over £10.2m will be subject to the ECL. The ECL will be tapered according to the size of the entity.”

This is welcome news for the accountancy sector, and particularly the IFA, which led the charge for small business exemption.

For many, it will be a welcome relief, rendering additional administrative burden redundant and allowing businesses to contribute in a manner that is more reflective of their size and scale.

“It is essential to remember that risk as outlined by the UK’s National Risk Assessment (NRA) 2020 is not always directly representative of the reality,” says Anne Davis, director of professional standards for the IFA. “Accountants are assessed in the NRA to be ‘high risk’ because accountancy services are attractive to criminals due to their ability to legitimise the proceeds for crime.

“This notion, while true, does not reflect the reality of the sector, made up of upstanding, principled individuals and firms, who actively seek to prevent, detect and report instances of economic crime to the relevant authorities. Under the original proposed plans for the ECL, accountants in smaller firms would have been disproportionately impacted by the proposals, and we therefore welcome the revisions that have been included in the Economic Crime (Anti-Money Laundering) Levy: draft legislation.”

The Call for Evidence ran until October 2020. The IFA’s full response can be viewed here.


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