The UK often promotes itself as being “open for business,” providing favourable conditions to startups and encouraging international businesses to make Britain their base. Through the lens of the Ukraine war, our ‘open’ economy looked a little different. A crackdown on Russian influence, wealth, and investment in the UK, paved the way for new legislation – in the form of The Economic Crime (Transparency and Enforcement Act) 2022.
Hot on its heels now comes the Economic Crime and Corporate Transparency Bill. The intention is to:
- Reform the role of Companies House, enabling greater power for investigation and enforcement.
- Ensure Limited Partnerships are more carefully managed, avoiding misuse.
- Enable the seizure of crytpoassets that are either the proceeds of crime or connected to money laundering.
- Improve information sharing, tackle money laundering, and reduce economic crime.
So, what does this mean for UK SMEs?
Client Legal Director, Amanda Mallender, explains all…
Greater focus on accuracy in company and shareholder information.
Companies will no longer be able to elect to keep their register of members on the central register at Companies House and must instead maintain it locally. Abbreviations will no longer be permitted, so businesses should ensure full names are documented for shareholders. Simple initials will not be accepted.
What to do now:
Put in place measures to maintain an internal register of members if it is currently held at Companies House. Communicate the importance of full and accurate information to all affected parties and notify Companies House promptly of information changes to ensure compliance.
Increasing scrutiny of registered company information.
To clamp down on the misuse of company registered addresses, every UK company will need to provide an appropriate email address for Companies House to communicate with. They must also ensure their registered office address is somewhere that documents can be delivered to by Companies House, with the reasonable expectation they reach someone acting on behalf of the company.
Increased powers to check, challenge and reject information, plus new powers to query and reject name changes aim to tackle dishonesty/deception and curtail the use of ‘sensitive’ words.
What to do now:
If your registered company address is your principal place of business, or your business is registered at the address of your accountant or other professional, you do not need to do anything. However, keeping contact information accurate and up to date is key as Companies House will be able to challenge inconsistent and incomplete information; refuse to accept and register a document and order companies to rectify inconsistencies.
Photo ID aims to cut fraudulent appointments and ‘fictitious’ directors.
Identity verification is a critical step to curtailing criminal activity. UK companies will need to ensure no person acts as a director until their identity has been fully verified and each new appointment should be accompanied by a statement confirming the company’s satisfaction that the director’s identity has been properly verified. Verification requires photographic ID.
Only individuals with verified identities will be able to file documents at Companies House, and overseas entities will no longer be eligible to file on the company’s behalf.
All new and existing Directors, any Person with Significant Control (PSC) of a company and anyone filing on behalf of the company, will need to have their ID verified.
The timetable for verification of existing Directors/PSCs is not yet formalised, although a transition period is anticipated. For new directors, expect verification to be required prior to formal company formation (for new businesses), and in advance of notifying the Registrar of their appointment for existing companies.
Two routes for verification will be available:
- Creating a verified identity with Companies House
- Verifying your identity through an ACSP (Authorised Corporate Service Provider) – e.g., Legal advisors registered with a supervisory body for anti-money laundering purposes (AML).
More information is available on this Government factsheet.
Be warned: non-compliance will be a criminal offence, potentially resulting in a fine, or a refusal to incorporate the company. Directors who fail to comply may be subject to sanctions and/or prohibited from acting as a director.
What to do now:
Amend your processes to ensure you are verifying the identity of all new Directors
Filing accounts made simpler for micro entities and small companies.
Abridged and filleted accounts are to be abolished, meaning micro-entities with 10 employees or fewer and a turnover of less than £632,000, need only file a balance sheet. Small companies with 50 employees or fewer and a turnover under £10.2 million will need to file a balance sheet, profit and loss account and a directors’ report.
What to do now:
Prepare your accounts in line with the new requirements, ensuring they are not abridged/filleted.
A confident approach to tackling economic crime and corporate transparency.
These changes are aimed at ensuring companies are created for lawful purposes (and are less able to be misused) and that Company Directors and Persons of Significant Control are legitimate, reducing the risk of fraudulent activity that could damage the fortunes of British businesses.
While the onus is firmly on the Directors and the Company itself to submit timely, accurate information to Companies House, increased powers to investigate, amend and fine inappropriate activity, should give all businesses trading with UK companies greater confidence.
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