Economic Crime Levy to apply to Art Market Participants

Government publishes response to consultation on Economic Crime Levy

The "economic crime levy" was first proposed by Chancellor Rishi Sunak in his March 2020 budget. This levy, to be paid by entities subject to anti-money laundering ("AML") regulations, including the Money Laundering Regulations ("MLRs"), aims to raise £100 million per year to fund efforts to battle economic crime. Art Market Participants ("AMPs") may be liable for the levy as entities required to comply with the MLRs.

The government held a consultation on the design of the levy from July to October 2020, with six art market entities providing responses. Following June's eleventh-hour reprieve for artists from registration as AMPs, there was perhaps hope that the government would again appreciate some of the nuances of the art market in its draft levy legislation.

Frustratingly, however, the government's response (published on 21 September 2021) appears to have largely ignored the concerns raised by AMPs. Most significantly, the basis used to calculate an entity's levy liability may disproportionately impact AMPs as businesses that provide both goods and services.

Key considerations for Art Market Participants

The key points for AMPs to know about the new economic crime levy are as follows:

• All AML-regulated AMPs will need to consider whether they are liable to pay the levy. The levy is charged in four bands based on the amount of an entity's UK revenue: small, medium, large and very large. Small entities (being regulated entities with UK revenue of less than £10.2 million) are exempt from the levy, but should monitor their revenue each year in case they move up a band. This exemption should provide welcome relief to a number of small arts organisations.

• The levy is calculated based on revenue. The government's position is that revenue is the "best base available" for calculating the levy. This may perplex AMPs, who generally derive income from both services and the sale of tangible goods, meaning that their revenue figures (and thus levy liability) could be inflated when compared to purely service-based sectors. Respondents from the art world had proposed gross profit as an alternative metric for the industry, but the government ultimately opted for a single consistent metric.
• Only UK revenue is considered in calculating the levy. The levy is based on revenue derived from "UK activity", which is:
  • for a UK resident entity, all of that entity's revenue after deducting so much of its revenue as, on a just and reasonable apportionment, is attributable to the activities of any permanent establishment of the entity in a territory outside the UK; and
  • for a non-UK resident entity, so much of the entity's revenue as, on a just and reasonable apportionment, is attributable to activities of any permanent establishment of the entity in the UK.
• The levy will first be charged during the year running from 1 April 2022 to 31 March 2023, meaning that the first set of payments will be made during the year running from 1 April 2023 to 31 March 2024. 
• Late, under- or non-payment of the levy will be owed as a civil debt to the Crown and incur interest. To avoid any unnecessary interest payments, AMPs should make an initial assessment of whether they will be liable for the levy now, and be prepared in advance of the 2022/23 tax year.

Next steps

The levy will be reviewed after three years of operation, by the end of 2027. At this time, the government will consider whether the levy is continuing to meet its original policy objectives, should continue, should remain to be based on just the AML-regulated sector and is still being calculated and collected appropriately.

There is now a short technical consultation running until 15 October 2021, at which point the legislation will be included in the 2021-22 Finance Bill. Any consultation responses should be sent to: eclevyconsultation@hmtreasury.co.uk.

For assistance in navigating these issues, please contact a member of our Art Law team.