Why the Government should exempt small businesses from new economic crime levy

Phil Hall, AAT Head of Public Affairs & Public Policy sets out why AAT believes it is necessary to grant small companies an exemption from the forthcoming Government levy to help fund the fight against money laundering and economic crime.

AAT is fully committed to tackling money laundering and economic crime and has made – and continues to make – a substantial investment in doing so.

That said, AAT has previously been critical of Government plans to introduce a £100m annual economic crime levy on British businesses via regulatory bodies. Despite our best efforts, and those of a number of other professional bodies, we have reluctantly accepted that the levy is going to be introduced come what may and so our attention has turned to how we can best make this work in practice and mitigate any potentially damaging effects.

With this in mind, we have highlighted from the outset that small businesses must be exempted. 

Cost and administrative burdens

It is vital that a small company exemption is granted to secure a reduction in the overall compliance burden – for both small businesses and the professional bodies who are being compelled to collect it. 

An exemption would protect any small businesses who may well struggle to pay these increased costs. AAT, like most other professional bodies, also seriously questions the cost effectiveness of requiring professional bodies to set up mechanisms to collect monies from thousands of small businesses. 

Imposing additional financial and regulatory burdens on small businesses is very difficult to justify at any time but especially so in light of the current global pandemic and the disruption caused by Brexit. It could be argued that the economy may be in a better place by the time the levy comes into force but that is far from certain, especially when you consider data such as that released by the Federation of Small Businesses this month, indicating 250,000 small businesses are set to fold in the next 12 months.

Other levy exemptions

The British economy features a wide range of levies, all of which provide exemptions for small businesses. For example, the Construction Industry Training Board (CITB) levy exempts those with a turnover below £120,000 per annum, the Apprenticeship Levy exempts those with a pay bill below £3m, the Climate Change Levy does not apply to small businesses with low energy usage.

It would be grossly unfair and unreasonable not to recognise this long held precedent of exempting small business from levies but more importantly it would also ignore the reasons why such exemptions are granted in the first place. These exemptions are almost exclusively permitted due to the disproportionate administrative burden they pose to small businesses, as well as their considerable financial impact – both of which clearly apply when considering this new economic crime levy. 

Conservative Party Manifesto Commitments

The December 2019 Conservative Party Manifesto makes a number of clear commitments to the small business community which would arguably be breached if the Government were to fail to grant a small company exemption.

For example, the manifesto exclaims, “We will keep costs down for small businesses” before going on to explain that, “…the only way to fund world-class public services and outstanding infrastructure is to encourage the millions of British businesses that create the wealth of the nation” It later adds, “We understand the challenge of increasing running costs, especially for smaller firms, and are committed to reducing them.” Perhaps of most relevance, the manifesto also states, “…we will ensure that regulation is sensible and proportionate, and that we always consider the needs of small businesses.” 

Such promises appear to be incompatible with the imposition of a regulatory levy on small firms, no matter how well intentioned. 

Levy exemption is not an exemption from responsibility 

If small businesses are to be exempt from the levy, this in no way undermines or impacts upon their legal obligations to take all necessary steps to prevent money laundering. 

AAT has a responsibility to help our members understand relevant legislative requirements and ensure  that members comply with the law. This is replicated not just across the accountancy sector but across a range of sectors with statutory supervisors, most of whom have members operating in the small business community. 

For instance, small accountancy firms who are regulated by AAT are subject to practice assurance reviews involving an AAT representative assessing a firm’s compliance with AAT’s standards, policies, and regulations, and crucially their compliance with various statutory requirements, including anti-money laundering legislation. 

In keeping with such legislative requirements, member firms are required to have written policies, procedures, and controls in place to combat money laundering, undertake appropriate risk assessments and AAT licensed accountants are required to supply a copy of their risk assessment as part of their annual practice performance review.

The impact of OPBAS and other anti-money laundering regulation should also not be underestimated on the small business community given there are not just additional costs for members as a result of their supervisory body being regulated by OPBAS but additional cost burdens through the pressure on professional bodies to increase data collection, ‘forensic’ assurance review activity and resource production which has been significant.  

Additional support

AAT is far from alone in believing a small company exemption should be granted. Of those who responded to the 2020 consultation, the Solicitors Regulation Authority is the only significant professional body to have opposed a small company exemption – and it is worth noting that others in the legal profession strongly favour an exemption, especially the Law Society and Law Society Scotland. 

Inevitably, small businesses will support an exemption too. 

This simply leaves the banks and some other very large organisations that are said to be opposed to the idea of a small business exemption. Many of which are the same organisations that have received multi million-pound fines for significant anti-money laundering and economic crime breaches in recent years. Are these really the institutions that should be dictating Government policy in this area?

Phil Hall is AAT's Head of Public Affairs and Public Policy.