Economic Crime Levy: is your law firm exempt?

Not all law firms will be required to pay the Economic Crime Levy, it has been announced. The new guidance, published this month, shows that the smallest businesses will be exempt.

Here’s everything you need to know about the new tax.

What is the Economic Crime Levy?

The new levy – announced at Budget 2020 – is designed to help fund the fight against economic crime, such as money laundering. It will impact any law firm that falls within the scope of anti-money laundering (AML) regulations, such as conveyancers and those who hold client money.

It is estimated that the levy will raise around £100 million a year to help meet the costs of “new and uplifted capabilities”.

Who is subject to the tax?

Any firm within the scope of the Money Laundering Regulations (MLRs) and with UK revenue over £10.2 million will be required to pay the Economic Crime Levy.

This means law firms with revenue below £10.2 million will be exempt from the regime.

How much do I need to pay?

While the exact figures have yet to be published, it is suggested that the levy will be no more than 0.1 per cent of an entity’s UK revenue.

This equates to around £5,000 to £15,000 for a medium-sized firm (those with revenue between £10.2 million and £36 million), £30,000 to £50,000 for large firms (£36 million to £1 billion revenue) and £150,000 to £250,000 for the biggest firms (£1 billion or more in revenue).

When do I need to pay?

The Economic Crime Levy has been pushed back to 2023/24 in response to the coronavirus pandemic.

Exemption “welcomed” by sector

The Law Society for England and Wales welcomed the newly announced exemption for the smallest firms, but warned that the levy will still have an “unjustified and negative impact” on legal services.

“The levy effectively represents a tax on the provision of legal services, undermining the competitiveness of a key British industry at a time when the sector should be championed,” said Law Society president I. Stephanie Boyce.

“Imposing a levy based on a firm’s revenue is an arbitrary measure, and means there is no link between the amount a business is required to pay and the extent of the risk it brings into the system.”

For help and advice with related matters, please get in touch with our legal finance team.