Disclaimer: This article is intended for information only and does not constitute legal advice.
As part of its 2020 budget, the UK government announced a new Economic Crime Levy (ECL) to fund the reforms laid out in its 2019 Economic Crime Plan. Under the proposals, the levy will be payable by any business that is subject to anti-money laundering (AML) regulations and turns over £10.2 million in combined revenue a year (more on this to follow). All estate agencies are subject to AML legislation, plus letting agents that manage high-value properties with rents of the equivalent of 10,000 euros or more per month.
This means that qualifying estate and letting agencies that meet this revenue threshold will be in the scope of the levy.
From July to October 2020, the government ran a consultation seeking views across industries that are subject to AML regulations. Estate and letting agencies that responded included firms such as Knight Frank and LSL Property Services.
As well as eliciting responses to the principles of the levy, the consultation asked respondents for their opinions on topics such as what the levy should pay for; how the government could ensure there is transparency over levy spending; how levy liability would be calculated, and which entities should be paying the levy; and how the levy should be collected and enforced.
The government released its response to this consultation in September 2021, along with draft legislation.
Collection of the ECL will be delayed by a year, with the first payments due in 2023/2024, a year later than planned. It is expected to raise £100 million annually.
How much will your agency have to pay?
Firms that exist within an anti-money laundering regulated sector (AML) and fall within the scope of the levy will be charged a fixed fee, depending on which of four bands they fall into.
There have been criticisms that the band classification is too broad, so this could change. The exact figures won’t be fixed until the next Finance Bill (2021-22), the yearly bill that the government uses to put its new tax and income-raising proposals into law. It’s anticipated the fee structure will be similar to the following:
Small firms (of less than 10.2 million pounds annual revenue) will be exempt from contribution.
Medium firms (10.2 million to 36 million) will be expected to pay between £5,000 and £15,000.
Large firms (36 million to 1 billion) will be expected to pay between £30,000 and £50,000.
Very large firms (over 1 billion) will be expected to pay between £150,000 and £250,000.
Under the proposals, the revenue-based calculation is to be applied across a firm’s entire UK business, and not just those elements that bring it within the scope of the Money Laundering Regulations (MLRs), which could have a big impact on firms for whom regulated activity forms a small part of revenue.
For example, if a business has an estate agency that turns over £8 million a year and a letting agency that turns over £4 million a year, it will still have to pay the levy because the combined revenue meets the £10.2 million threshold.
How many businesses will be affected?
The ECL applies to all AML-regulated entities. First figures suggest roughly 4,000 businesses are likely to be affected, with estate agents, high-value letting agents, law firms, banks, insurance firms, accountants, investment firms and company formation agents all coming under the classification. Accountancy and legal firms are already complaining they will be unfairly affected, with the levy being criticised as a ‘tax on the regulated’.
Who will collect the levy?
The levy will be collected by HM Revenue and Customs (HMRC), the Financial Conduct Authority and the Gambling Commission depending on the type of business.
How will the levy be applied?
The levy will be applied on an annual basis from April 1 each year (a levy year). Firms will be responsible for self-assessing the amount they owe, a figure which has to be paid within six months (although the first payment will be due a year after implementation of the levy).
What penalties will there be for non-compliance?
The size of the penalties that will be applied to those who self-assess incorrectly or attempt to dodge the tariff is not yet clear, though we do know that this will be regarded as a civil debt, and interest will be applied to late payment.
What’s next for the Economic Crime Levy?
The government finished running a technical consultation on the draft legislation for the ECL on October 15 2021. The final legislation will be included in the 2021-22 Finance Bill.
For more information on the ECL and other recent legal changes that letting agents should be keeping an eye on, watch our Quarterly Legal and Compliance Updates for Letting Agents on-demand webinar with property law specialist David Smith, Partner at JMW Solicitors.
*Simon Bushell is Sales Director of Fixflo, the market-leading repairs and maintenance management software