On 21 September 2021, HM Treasury published a document which summarises responses to the Economic Crime Levy (ECL) consultation, the government’s response to points raised and next steps.

At the Budget 2020 the government announced it would introduce a new levy to be paid by entities subject to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) to help fund new government action to tackle money laundering and ensure delivery of the reforms committed to in the 2019 Economic Crime Plan.  The government held a consultation on the design of the levy from July to October 2020. The consultation sought views on: the levy principles; what the levy will pay for; how the government can ensure there is transparency over levy spending; how levy liability will be calculated, and which entities should be paying the levy; and how the levy will be collected and enforced.

Key points in the government’s response includes:

  • The government has decided that entities subject to the MLRs will first be charged the levy during the year 1 April 2022 to 31 March 2023. The first payment of the levy will only be due after that year ends. This means the first set of levy payments will not be made until the year 2023/24 (running 1 April 2023 to 31 March 2024).
  • The government has decided to calculate the levy on entity size based on just UK revenue.
  • The government has decided that all in-scope entities will pay the levy based on UK revenue.
  • The government agrees with respondents that defining revenue in accordance with UK Generally Accepted Accounting Practice standards, like the Financial Reporting Standards, provides a suitable and commonly understood definition.
  • The government has decided small entities (i.e. all regulated entities with UK revenue below £10.2 million) will be exempt from paying the levy.
  • The government has opted to use a fixed fee system and intends to adjust the levy calculation methodology (e.g. fixed fee sizes) periodically, as this offers greater cost efficiency, certainty and predictability for all involved. The methodology is therefore not intended to change in the initial period leading up to the 3-year levy review.

In terms of how the government will determine if a business is in scope of the ECL, the document states that:

  • Each levy year will run from 1 April to 31 March (i.e. the government financial year) with the first levy year beginning on 1 April 2022.
  • An entity is in scope of the levy if they are anti-money laundering regulated – have carried out regulated activity as per Chapter 1 of the MLRs – at any point in a levy year.
  • An entity will determine its size based on the UK revenue it has made during its period of accounts that ends in the levy year. Provision will be made for entities who have multiple periods of account in the levy year and for those who have no periods of account in the levy year.
  • Levy payments will be made by entities to their relevant collector in the year after the levy year. For example, payments in the first levy year (2022/23) will be made after 31 March 2023.

The government has also published draft legislation and is undertaking a short technical consultation on its contents. The consultation closes on 15 October 2021.