Economic Crime (Anti Money Laundering) Levy impact on house builders, developers, and registered providers
The Finance Act 2022 received royal assent on 24 February 2022 and introduces new measures to tackle money laundering and economic crime, as part of the government's wider objective outlined in the 2019 Economic Crime Plan.
This includes a requirement for relevant entities to pay an Economic Crime (Anti Money Laundering) Levy (the Levy) which will be put towards government initiatives and used to fund anti-money laundering and economic crime reforms.
Who does this apply to?
An entity will be required to pay the Levy if:
1. they are subject to the Money Laundering Regulations (i.e., they carry on a "regulated business" as defined by s.8(1) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulations)); and
2. their UK revenue for the financial year is above £10.2m.
How does this affect house builders, developers, and registered providers?
Regulated businesses caught by the Regulations include any entities who carry out "estate agency work". The definition of "estate agency work" is by reference to the Estate Agents Act 1979:
"…things done by any person in the course of a business (including a business in which he is employed) pursuant to instructions received from another person (in this section referred to as “the client”) who wishes to dispose of or acquire an interest in land—
a) for the purpose of, or with a view to, effecting the introduction to the client of a third person who wishes to acquire or, as the case may be, dispose of such an interest; and
b) after such an introduction has been effected in the course of that business, for the purpose of securing the disposal or, as the case may be, the acquisition of that interest; and in this Act the expression “estate agency work” refers to things done as mentioned above to which this Act applies."
The entity only needs to fall within either (a) or (b) above to be considered an estate agency business. The key factor is whether or not the entity is acting as an intermediary between the buyer and seller. Should the entity act on the sale of a property they own to a third party, this is an outright sale and would not be considered estate agency work.
HMRC has recognised that the definition of "estate agency work" is very broad and HMRC Guidance has made it clear that it will cover businesses that will not ordinarily consider themselves to be 'estate agents' including:
- Asset management businesses that also provide estate agency business;
- Social housing associations [sic] that offer estate agency services including the re-sale of shared ownership units;
- Letting or property management agents that offer estate agency services to landlord customers or who undertake the sale of leases for a premium (where the bulk of rent is paid upfront);
- Construction companies (house builders) or developers to the extent that they offer estate agency services beyond the sale of their own constructed or bought units. For example, land or property may be held by one company in a group and a second within the group carries out estate agency work in respect of that land or property.
The Levy will apply to house builders and developers who provide estate agency services to a joint venture vehicle or to another entity within the group. Joint ventures are commonly used to structure residential development schemes and the joint venture vehicle will often appoint the house builder or developer to provide a variety of services, including sales and marketing services. Depending on the structure of the particular joint venture, if the developer markets the joint venture vehicle's property for sale, then the developer will fall within the definition of estate agency work and be subject to the Regulations and payment of the Levy.
How is the Levy calculated?
An entity carrying out the regulated business will have to determine whether it is "small", "medium", "large" or "very large" in each relevant accounting period for the purposes of the Levy. The Levy will be a fixed fee depending upon its size. An entity with UK revenue categorised as "small" will be exempt.
|Band||UK Revenue||Annual Levy|
|Small||£10.2 million or lower||Exempt|
|Medium||More than £10.2 million but not more than £36 million||£10,000|
|Large||More than £36 million but not more than £1 billion||£36,000|
|Very Large||More than £1 billion||£250,000|
In general, revenue is calculated in accordance with UK GAAP. The total revenue of the entity carrying out the regulated business is used to determine the amount of the Levy and not just the amount attributable to the regulated business. The Levy is paid at entity level and not on a group basis and so each entity engaging in a regulated business must separately assess its liability based on its UK revenue.
The Levy will first apply for the year 1 April 2022 to 31 March 2023. However, the payments of the Levy will only be due after that year ends. The Levy will be collected by either the Financial Conduct Authority, the Gambling Commission or HMRC depending on who the supervisory authority is for the entity and there are different methods of payment for each. In most cases, for house builders, developers, and registered providers the appropriate collection authority will be HMRC. In which case, a return must be made, and the Levy paid on or before 30 September following the end of the financial year for which the liability arises. Therefore, first payments will be made in the financial year from 1 April 2023 to 31 March 2024.
What is the impact?
The Levy will affect an estimated 4,000 businesses who will need to self-declare their levy status (i.e., whether they are AML regulated and their UK revenue during the relevant financial year).
The financial impact will differ on an entity-by-entity basis depending on which band the entity falls within. Clearly, if revenue is more than £1 billion a year and the highest level of Levy is payable, then this will be of far greater financial detriment to those sitting in the "medium" and "large" banding where the Levy is either £10,000 or £36,000.
Going forward, affected entities will need to consider internal procedures and measures to ensure compliance with both the administrative and financial requirements of the new legislation.
If you would like to discuss any aspect of this article, including the options available to mitigate the impact of the Levy or more generally for advice on compliance with the new legislation, please contact us.