A new Parliament Bill is due to bring the ‘largest reform of the UK’s company registration framework in 170 years’. In this article, we will review the changes that The Economic Crime and Corporate Transparency Bill is set to introduce, and how this will affect you and your current or future business.
The Economic Crime and Corporate Transparency Bill is set to expand on the progress made by The Economic Crime (Transparency and Enforcement) Act introduced in 2022 which saw the implementation of the Register of Overseas Entities.
A Parliament factsheet claims that the aim of the Bill is to ‘reform the role of Companies House and improve the transparency over UK companies and other legal entities in order to strengthen our business environment, support our national security and combat economic crime, whilst delivering a more reliable companies register to underpin business activity’.
Reforming Companies House
Three methods of reforming Companies House have been revealed:
1. Identity checks
Anyone who wants to register a company or is currently registered as a director on Companies House will be subject to compulsory ID checks. Introducing these checks before a company is incorporated should significantly reduce the number of fraudulently created companies and directors.
2. Potential Companies House fee increase
During a House of Commons reading, Seema Malhotra MP revealed “Clause 20… is about resourcing – this would raise Companies House fees to £100 to help properly fund the fight against economic crime. The current fee, at just £12, makes us the 6th cheapest place in the world to set up a company.”
The thought behind the fee increase is that the current rate, at only £12, enables fraudsters to set up an unlimited number of companies for a relatively small price. It is hoped that the proposed fee increase, which ranges from £50 to £100, is not expensive enough to deter future entrepreneurs but is expensive enough that it will deter someone from fraudulently registering companies. Therefore, additional powers will be granted to Companies House to help them to tackle fraudulent information from being registered.
3. Greater powers to tackle fraudulent information
In 2021, Martin Swain, the former Director of Strategy, Policy and External Communications at Companies House, admitted that sometimes information is known to be ‘incorrect or potentially fraudulent, however, the registrar is legally required to register it’ (thisismoney.co.uk). Currently, Companies House has no powers to tackle wrong or fraudulent information unless someone registers a complaint against the information held on the register.
The extent of fraudulent information held on Companies House’s register is unknown, but experts believe that as much of 20% of the data related to the 4.9 million companies registered with Companies house up to March 2022 could be false. (The Guardian)
The large-scale fraud that is involuntarily facilitated by Companies House due to the lack of control to challenge potentially fraudulent information is estimated to have cost the UK economy £137 billion in damages to date.
How will this affect existing and new businesses?
For those setting up a new company, individuals will need to verify their identity in one of two ways;
- Directly through Companies House themselves using their primary identity document (such as their passport or driving licence) and a photo of themselves.
- Through a company formation agent such as 1st Choice Incorporations, who will be authorised to verify the identity of their clients.
This verification will need to be completed before any incorporation documents are sent to Companies House. A Person with Significant Control (PSC) will have up to 14 days after the registration of the company to verify their identity. For existing companies, directors and PSCs will have a yet to be determined transition period to verify their identity.
It has not yet been revealed what alternative verification methods will be available for people who are unable to verify their identity digitally, or do not have a photographic ID.
Also Read: Government Plans to Boost the Economy
Non-Compliance
The consequences for non-compliance with identity verification could include:
- Being unable to register new companies
- Being blocked from filing statutory filings for your company (such as your confirmation statement and annual accounts)
- An ‘unverified’ status on your company’s profile on the public register
- Civil penalties issued by Companies House
- A fine of up to a £5000
Whilst there is no date for when this bill will be made into law, it is only a matter of time since all readings at the House of Commons and House of Lords have been completed. We will provide a further update once more information is published.
