Regulations introduced last year appeared to make insolvency office holders personally liable for the new economic crime levy due from insolvent businesses, whether incurred pre- or post-appointment. Was this another example of HMRC looking to jump the queue over ordinary unsecured creditors?<\/p>\n\n\n\n
Fortunately, R3 took up the baton and, eventually, amendment regulations were created to curtail these effects. Phew!<\/p>\n\n\n\n
The original regulations, the Economic Crime (Anti-Money Laundering) Levy Regulations 2022 (\u201cthe Regs\u201d), can be found at: https:\/\/www.legislation.gov.uk\/uksi\/2022\/269\/contents\/made<\/a><\/p>\n\n\n\n The Economic Crime (Anti-Money Laundering) Levy (Amendment) Regulations 2023 (\u201cthe Amendment Regs\u201d), are at: https:\/\/www.legislation.gov.uk\/uksi\/2023\/369\/contents\/made<\/a><\/p>\n\n\n\n How does the levy work in general?<\/span><\/strong><\/p>\n\n\n\n Don\u2019t panic! The charge is not levied on all businesses. It is attracted only by businesses that carry out AML-regulated businesses\u2026 so banks, solicitors, accountants, art dealers, estate agents, casinos, insolvency practitioners\u2026<\/p>\n\n\n\n IPs?!\u00a0<\/span><\/strong><\/p>\n\n\n\n Honestly, there\u2019s no need to panic\u2026 at least not this year.<\/p>\n\n\n\n Relating to the 2022\/23 year, the levies are:<\/p>\n\n\n\n The levy for the 2022\/23 financial year becomes due on 30 September 2023. The levy rates have been fixed by the Finance Act 2022, so it will be interesting to see if\/when this changes in future and whether small businesses will be made to contribute.<\/p>\n\n\n\n What if the trader goes insolvent?<\/span><\/strong><\/p>\n\n\n\n Regulation 15 of the Regs states:<\/p>\n\n\n\n And that was it! There was nothing limiting the scope or slipping the levy into any insolvency order of priority: if the insolvent business couldn\u2019t pay, then the levy could be charged to the office holder.<\/p>\n\n\n\n Disaster averted!<\/span><\/strong><\/p>\n\n\n\n After I had realised the effect of this regulation (with the help of the R3 GTC chair), I raised it at an R3 General Technical Committee meeting and fortunately R3 \u2013 as well as, I think, the Insolvency Service (after all, Official Receivers could be liable too) \u2013 took up the issue with HMRC, as they are the \u201cappropriate collection authority\u201d in the majority of cases.<\/p>\n\n\n\n The Amendment Regs were made on 27 March 2023 and they insert the following:<\/p>\n\n\n\n The effect of this amendment<\/span><\/strong><\/p>\n\n\n\n In other words, if the levy relates to pre-appointment revenue, it will remain due and payable by the insolvent entity, i.e. it will be a normal unsecured claim. It is only if the levy relates to post-appointment revenue that we will need to worry, because then it will be an expense.<\/p>\n\n\n\n The thought of trading-on an AML-regulated business probably sends shivers down most of our spines already. Now, the attraction of an additional expense just adds another nail in the trading-on in insolvency coffin.<\/p>\n\n\n\n \u201cEquivalent procedures\u201d?<\/span><\/strong><\/p>\n\n\n\n As you can see, the Regs specifically reach to liquidators, receivers, administrators and trustees in bankruptcy. What about VA Nominees and Supervisors? Personally, I can think of many arguments as to why a VA is not an equivalent procedure and moratorium monitors are even less likely to be caught, I think. However, it may well be up to the courts to decide on those.<\/p>\n\n\n\n It\u2019s not all good news: more work for office holders<\/span><\/strong><\/p>\n\n\n\n Regulation 15 imposes more than a direct financial cost on insolvency office holders. They also \u201cmust satisfy the requirements of Part 3 of the Act and the requirements of these Regulations as if they were the person liable to pay the levy\u201d.<\/p>\n\n\n\n This means that insolvency office holders will need to submit returns to HMRC (or the FCA or the Gambling Commission, depending on the type of business) for pre-appointment periods and probably also for the first post-appointment period to the end of the tax year unless the collection authorities introduce an end-of-trading return process.\u00a0 I very much doubt that HMRC etc. will be able to accommodate office holders who want to submit returns offline \u2013 that will be interesting.<\/p>\n\n\n\n If there is no post-appointment trading and no prospect of an unsecured dividend, will office holders still be required to submit missing returns? Let\u2019s hope the collection authority doesn\u2019t get all jobsworth over this requirement.<\/p>\n\n\n\n A new regime and a new registration process<\/span><\/strong><\/p>\n\n\n\n Of course, we\u2019ve only just got to the end of the first levy year and, although the Regs came into force on 1 April 2022, HMRC is not yet receiving registrations (see https:\/\/www.gov.uk\/government\/publications\/prepare-for-the-economic-crime-levy\/get-ready-for-the-economic-crime-levy#registering-for-the-ecl<\/a>). Therefore, office holders taking appointments of AML-regulated entities over the next few months may also need to do the work of registering the entity in the first place.<\/p>\n\n\n\n Is it all a conspiracy?<\/span><\/strong><\/p>\n\n\n\n Actually, no, I don\u2019t think HMRC tried to jump the queue by getting this levy some kind of super priority. I think it was just poor drafting. But, goodness, what poor <\/em>drafting!<\/p>\n\n\n\n It goes to show that we all need to stay alert to new legislation: the more eyes on these things, the better.<\/p>\n","protected":false},"excerpt":{"rendered":" Regulations introduced last year appeared to make insolvency office holders personally liable for the new economic crime levy due from insolvent businesses, whether incurred pre- or post-appointment. Was this another example of HMRC looking to jump the queue over ordinary … Continue reading