We’re putting you on notice: company law has changed… and on this occasion, it will have a tangible impact on the day to day running of your business. We set out here what has happened, why it is important and what the consequences are for UK registered companies.
The Economic Crime and Corporate Transparency Act found its way through parliament, via the house of lords, and all the way to royal assent in late 2023. The rather convoluted and auspicious manner in which new legislation is introduced in the UK feels appropriate in this case for a piece of legislation which introduces the biggest shake up to UK company law in well over a century.
Why is this important?
The stated aim of the new legislation is twofold: to tackle economic crime and support economic growth. The UK, from a company law perspective, is a flexible market in which to do business and a popular choice for entrepreneurs and investors alike. The powers that be are aiming to build on this reputation by ensuring that the registrar of companies has a more active role in tackling economic crime and maintaining public confidence in the information on the register. Principally this means they have more widespread powers to ensure that information which is uploaded to the public register is transparent and accurate. They can also play a more active role in policing the provision of that information and challenging where they feel there are gaps or discrepancies.
What has changed:
Companies House Fees
UK companies are required by law to keep the There are a number of key changes which have been introduced in the new legislation and which have already taken effect. Firstly, there has been an increase in Companies House fees in effect from May 2024 (see Changes to Companies House fees – Changes to UK company law), which are intended to fund the large and complex set of changes to be introduced over the next few years.
Registrar’s powers to challenge/request information
From March 2024 the registrar has had greater power to query information on the register, challenge registered office addresses which are not ‘appropriate’, require companies to confirm on their annual confirmation statement that their intended future activities are lawful, and carry out stronger checks on company names which may give a false or misleading impression to the public. Non-response to a formal request from Companies House for more information could result in financial penalties, annotations on the company’s record and criminal prosecution.
What will change:
Key changes to take effect and which are on the horizon are as follows:
Identity Verification
From Spring 2025 Companies House will introduce a new identity verification process. This is intended to act as a deterrent to anyone wishing to use companies for illegal purposes. The practical effect is that anyone setting up, running, owning or controlling a company in the UK will need to verify their identity. This will be phased in over time with the process for verification to be finalised and set out in the coming months.
Protection of personal information
From Spring/Summer 2025 there will be measures in place to prevent the abuse of personal information held at Companies House. This information will only be published where it is necessary and proportionate to do so, and from January 2025 individuals can apply to supress certain personal information from historical documents.
Filing annual accounts
There is going to be a transition towards filing accounts digitally. This will mean more efficient and secure filings and will improve the quality of financial data on the register. In order to comply with the changes, all companies will need to have suitable software in place to be able to file by the time the web-based and paper filing options are removed. The plan is to phase this in over a 2-3 year period, and all companies will be given sufficient notice before the changes take effect. In addition, small and micro entities will also need to file their profit and loss accounts, small companies will need to file a directors’ report, and there will no longer be an option to file ‘abridged’ accounts.
Changes for limited partnerships
From Spring 2026 limited partnerships will need to file via authorised corporate service providers, and will need to file more information.
Offence of failure to prevent fraud
This last one is a departure from the theme of Companies House information and filings. However, it is important to note that the new legislation creates a new offence of ‘failure to prevent fraud’. Once in force (there still needs to be guidance published before it can take effect), this offence can be triggered by not having reasonable fraud prevention procedures in place (regardless of whether the company bosses knew about the fraud). The penalty for conviction will be an unlimited fine.
Summary and top tips
The devil is always in the detail, and the set of changes above will have a tangible impact on the administrative requirements of maintaining your records at Companies House and ensuring you are compliant with the up-to-date legislative requirements. These administrative tasks are often seen as a burden and can easily be neglected in favour of the bigger ticket items on your to do list for the week. However, given the nature of the changes and the increased powers now enjoyed by the registrar, the consequences of getting this wrong have materially increased.
Our top tips are as follows:
-Start thinking about verification requirements now – who will need to be verified and do you have the requisite documentation to provide to the registrar? Will you deal with this internally or through authorised providers (such as accountants or solicitors)?
-Are your filings up to date and in line with your statutory registers and other internal documentation? Getting your house in order now (for example, undertaking an audit of filings and dealing with any corrective actions which arise) could prevent the registrar flexing its new powers to challenge/request information against your company.
-Consider whether there is any potentially harmful personal information in the public domain which you would like to suppress – this will reduce the risk profile of exposed individuals (such as directors and shareholders) within your organisation.
-Carry out an audit of your fraud prevention procedures – do you have sufficient internal guidance and training in place to ensure you will not fall foul of the new legislation? The financial and reputational consequences of neglecting this could be significant once the new rules take effect.
If you have any questions or concerns regarding the impact of the changes on your company you as a director or shareholder, schedule a complementary call with us.
About Mahitha Kumar:
Mahitha Kumar is a corporate and commercial lawyer admitted in New Zealand, as well as a chartered accountant with Chartered Accountants Australia and New Zealand. Her previous experience involves working at a top 10 New Zealand law firm, and in the transaction team at Deloitte, giving her rich experience in corporate structuring, M&A, fundraising, equity documentation and general commercial drafting and advisory.
Contact email:
mahitha.kumar@sumer.co.uk
