What this is: Read about the recent reforms by Companies House as part of the Economic Crime and Corporate Transparency Act (ECCTA), focusing on the enhanced role of Companies House in ensuring accuracy and legality in UK entity data, imposing stricter registered office requirements, augmenting the Registrar's powers and introducing digital ID verification for company associates.
What this means: For UK entities, these changes mean a substantial shift towards more rigorous compliance measures. The reforms aim to improve transparency and prevent misuse of corporate structures, with a balance between open access to information and personal data protection. As a result, companies should anticipate stricter regulations, potential fee increases and a need to update their processes in line with the new requirements.
We have been closely following the landmark changes introduced by ECCTA that received the royal assent on October 26, 2023.
As one would expect, Companies House is gearing up to play a more significant role in fulfilling the objectives outlined in ECCTA, namely tackling economic crime and supporting economic growth and transparency.
This article focuses on the changes that Companies House will introduce in the coming months that all entities will be expected to comply with.
There are many changes to compliance measures with this ECCTA update. Head over to our UK Corporate Services page to get help.
Gatekeeper of Entity Data
Companies House, as we all know, has traditionally been the custodian of entity information in the UK. However, the quality of that data is only as good as what the entities themselves furnish to Companies House from time to time.
In order to improve the quality and accuracy of such information at all times, Companies House is enacting a suite of measures to ensure that (i) proper documents are delivered in a timely manner and through approved methods, (ii) there are no inaccuracies in the documents delivered, (iii) that there is no false or misleading information and (iv) any unlawful activities carried out or facilitated by the companies are prevented.
‘Fit for Purpose’ Registered Office
Under the Company law, each UK company is required to have a registered office address in its country of incorporation. Whether the address provided during the incorporation is valid and fit for purpose during the lifetime of the company is not currently verified. The new rules will tighten this loophole and will prevent companies from using a mere PO Box address as its registered office. The new rules, when enacted, will require companies to always have an appropriate address as the registered office. Any documents sent to the registered office should be expected to come to the attention of a person acting on behalf of the company and any documents sent to that address can be recorded by an acknowledgement of delivery. Companies House will take action against companies that do not meet this requirement.
Increased Powers of the Registrar
As part of this reform, we can expect the Registrar to:
- Send queries and, if required, to challenge the information submitted to them by the companies.
- Undertake greater checks on the company names to avoid misleading the public about the nature of their activities and to tackle misuse of company names.
- Take steps to clean up the existing information and perhaps even remove false or incorrect information provided by the companies.
Companies House will be able to impose penalties or sanctions and even prosecution of the companies failing to comply with its requirements.
Verification of Identities of the Directors, PSCs and Anyone Acting on Behalf of a Company
With the goal of improving corporate transparency and deterring anyone from using companies for illegal purposes, Companies House will introduce a digital ID verification process to prove the identities of people associated with companies.
We will need to wait for the new rules from Companies House on the implementation of the ID verification process. It is, however, expected that anyone wishing to form a new company will need to prove their identity and the existing companies will be asked to provide identification proof for their directors and PSCs within a transition period to be outlined in the rules. The new rules, when enforced, will apply to all entity types (limited company, limited liability partnerships, limited partnerships).
It is expected that Companies House will roll out a platform for ID verification using an individual’s passport. We have already seen the UK government successfully implement digital ID verification methodology using Passport in other departments such as Home Office, Land Registry, etc. It is expected that this technology feature will be customized for use by Companies House.
In addition to the above, Companies House authorized agents (Authorised Company Service Providers or ACSPs) will also undertake ID checks. The checks by ACSPs will need to meet the same level of assurance as those who verify directly with Companies House.
Changes to Annual Accounts Filing and Confirmation Statement
Companies House will transition toward a “software-only” method for annual accounts filing to eliminate data inconsistencies and inaccuracies. Paper-based filing of annual accounts will be phased out and the companies will have to obtain an approved software to submit their financials. There is expected to be secondary legislation on small and micro-entity company accounts and what is required to be included in their accounts.
Starting in early 2024, Companies House will start gathering “registered email addresses” for new and existing companies in their Confirmation Statement. This email address will not be publicly available and will be used by Companies House to communicate with the company.
Another change that can be expected starting in early 2024 is the inclusion of a statement in the company’s Confirmation Statement each year that the companies’ current and future activities are lawful.
Protection of Personal Information by Companies House
A ruling by the European Court of Justice (ECJ) last year reversed its earlier position of open access to the beneficial ownership register, with a view of balancing corporate transparency and protections of personal information. It has since been acknowledged that, while corporate transparency is essential in any progressive economy, it cannot be at the expense of an individual’s right to privacy and protection.
Companies House, therefore, will include measures that are proportionate when it comes to publishing personal information.
We all know that the residential addresses of directors and the “day” of the date of birth (from October, 2015) have already been suppressed by Companies House. However, it will take additional measures to suppress residential address information where it is being used as the registered office of the company. It will also focus on removing the “day” in the date of birth for documents submitted pre-2015. In addition, business occupation and signatures will be suppressed.
In the case of individuals needing additional protection, they will be able to apply to have their information restricted.
Companies House Fees to Increase
With Companies House taking a more prominent role in economic reforms and with the slew of upcoming reforms, it is expected that Companies House expenditure will go up. In order to fund these changes and recover the cost, they will be implementing a fee increase. Companies House has yet to announce its revised fee structure. We will be closely following this announcement and all others and we will update our resources.
What are the main goals of ECCTA and who will it apply to?
One of the key aims of ECCTA is to make it easier to identify and prosecute companies, partnerships and senior managers for economic offenses and failure to prevent fraud. This will apply to larger organizations who meet 2 of the following 3 thresholds: (i) More than 250 employees; (ii) more than GBP 36 million turnover and/or (iii) assets of more than GBP 18 million.
How will ECCTA affect Companies House?
The ECCTA grants unprecedented powers to Companies House as a regulator and a gatekeeper of UK registered companies/partnerships and their information. Following this, we can expect a series of reforms from Companies House; some will be early-stage reforms and others will require secondary legislation (or system changes) to be implemented.
Starting in 2024, we can expect more queries from Companies House on documents/information submitted to them. Companies House will have the power to scrutinise and reject information that seems incorrect or inconsistent with information already on the register.
Does ECCTA change UK Limited Partnerships (UKLPs)?
The ECCTA announces major overhaul of the limited partnership law which applies to all UKLPs, including private fund limited partnerships. The implementation of these UKLP changes will require a secondary legislation and there is likely to be a transitional phase before implementation.
Pursuant to ECCTA, all UKLPs will be required to demonstrate a UK connection through their principal place of business in the UK country of their incorporation. Alternatively, a UKLP may use the address of an ACSP to fulfill this requirement.
For more information, check out our companion article, Overview of the Economic Crime and Corporate Transparency Act, 2023 (ECCTA).
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.