October 2023 / United Kingdom

The United Kingdom's tax authority, His Majesty's Revenue and Customs (HMRC), has published draft legislation to amend the stamp duty and stamp duty reserve tax (SDRT) legislation by removing the 1.5% charge on the issue of UK securities into depositary receipt systems and clearance services and on some related transfers (known as "transfers integral to capital raising"). It will also remove the 1.5% (or 0.2%) charge on the issue of bearer instruments.

HMRC had recognized that these 1.5% charges were incompatible with the Capital Duty Directive following the 2009 decision of the European Court of Justice in HSBC Holdings PLC and Vidacos Nominees Ltd v Commissioners for HM Revenue & Customs and the 2012 decision of the United Kingdom's First-Tier Tribunal in HSBC Holdings PLC and the Bank of New York Mellon Corporation v Commissioners for HM Revenue & Customs. However, because taxpayers could rely on the direct effect of EU law, no attempt was made to collect the 1.5% duty. Following Brexit, the effect of the Retained EU Law (Revocation and Reform) Act 2023 means that it is now necessary for the government to legislate the 0% charge and this will have effect from 1 January 2024.

The 1.5% charge is contained in:

• section 131 of Finance Act 1976;
• section 126 of Finance Act 1984;
• sections 67 to 72A of Finance Act 1986;
• section 79 of Finance Act 1986;
• sections 93 to 97C of Finance Act 1986;
• section 50 of Finance Act 1987;
• section 143 of Finance Act 1988; and
• schedule 15 of Finance Act 1999.

The legislation will also make consequential changes, including in respect of an anti-avoidance provision which was introduced after the 2009 court decision, but which became redundant following the 2012 court decision.

The Economic Crime and Corporate Transparency Act 2023 (the Act) received Royal Assent on 26 October 2023, but although parts of the Act are law immediately, others require a statutory instrument before they come into force. The Act follows on from the Economic Crime (Transparency and Enforcement) Act 2022 and together they aim to prevent the abuse of United Kingdom corporate structures and to tackle economic crime.

The Act has several key objectives:

• prevent organised criminals, fraudsters, kleptocrats and terrorists from using corporate entities to abuse the UK's open economy. The Act will reform the powers of the Registrar of Companies and the legal framework for limited partnerships to safeguard businesses, consumers and the UK's national security;
• strengthen the UK's broader response to economic crime, in particular by giving law enforcement new powers to seize cryptoassets and enabling businesses in the financial sector to share information more effectively to prevent and detect economic crime; and
• support enterprise by enabling Companies House to deliver a better service for UK companies as well as improving the reliability of its data to inform business transactions and lending decisions across the economy.

Among other measures, the Act gives more power to the Registrar of Companies; introduces new identity verification requirements for new and existing registered company directors, people with significant control, and those delivering documents to the Registrar; tackling the abuse of limited partnerships; amending the Register of Overseas Entities to maintain consistency with the Companies Act 2006; creating powers to quickly and more easily seize and recover cryptoassets; and amending money laundering legislation.

A relevant body would face criminal prosecution if someone associated with it commits fraud to benefit the body where there were not reasonable procedures to prevent the fraud. However, this will apply only to "large organisations", which are those with a turnover of more than GBP 36 million, total assets of more than GBP 18 million and more than 250 employees. At present, small and medium-sized businesses are exempt, although the corporate requirements may be modified or removed in future. By comparison, the Act introduces a new test for corporate liability which is not limited to large organisations. This will apply to senior managers involved in specific economic crimes.

The UK's Registrar of Companies welcomed the introduction of the Act as a significant moment giving new and enhanced powers to Companies House, changing it from a recipient of information to undertaking a more active role. While many of the measures will require system changes before introduction, it is expected that other measures – such as greater powers to query information, stronger checks on company names, new rules for registered office and email addresses – will come into force in early 2024.