Strengthening corporate oversight: Companies House reforms following the Economic Crime and Corporate Transparency Act

Background

Representing the most significant update since corporate registration commenced in 1844, the Economic Crime and Corporate Transparency Act (2023) (‘the Act’) reformulates the role of Companies House to boost transparency for UK companies and other legal entities. This aims to improve the business environment, support national security and tackle economic crime by providing a more reliable register of companies that supports business operations. These reforms ensure that the UK’s corporate framework meets contemporary challenges.

For accountants, staying informed about these changes is essential, as the Act introduces stricter obligations on company reporting and verification requirements. Accountants will play a critical role in advising clients on compliance with the enhanced transparency measures and in adapting to the updated filing processes as Companies House transitions to its new framework.

An overview of Companies House and its relevance to the Act

In the UK, there are three registrars: for England and Wales (based in Cardiff), for Scotland (based in Edinburgh), and for Northern Ireland (based in Belfast). Their new are to ensure compliance with document submissions, maintain accurate and complete company records, and prevent false or misleading information in the public register.

Additionally, they are tasked with preventing companies from participating in or enabling unlawful activities. These goals guide the registrars in using their new powers under the Economic Crime and Corporate Transparency Act.

Over time, the measures will lead to greater transparency and accuracy of the information on Companies House registers. In doing so there will be new responsibilities for:

• all new and existing company directors
• people with significant control of a company (PSCs)
• anyone who files information on behalf of a company.

Changes to Companies House

A series of significant changes will be gradually implemented over the next few years, funded by increased Companies House fees on a cost-recovery basis. These fees, reviewed annually, were raised on 1 May 2024.

The reforms focus on several key areas, starting with new powers, effective from 4 March 2024, to clean up the register by removing inaccurate or fraudulent information and enhancing data sharing with law enforcement. By late 2024, new offences will also be sanctioned under these powers.

A major aspect of the reforms is identity verification for over seven million individuals. By spring 2025, Trust and Company Service Providers (TCSPs) and other professionals will be able to become Authorised Corporate Service Providers (ACSPs) to verify identities on behalf of their clients. By autumn 2025, new identity verification rules will require directors and people with significant control (PSCs) of newly incorporated companies to verify their identities, with a 12-month transition for existing companies.

Reforms to improve transparency in limited partnerships (LPs) will start in spring 2026, and information on company shareholders will also be made more accessible. Additionally, all accounts will eventually need to be submitted via software, though the formal notice period for this has not yet been announced.

Timeline of Implementation

The reforms introduced by Companies House as a result of the Act will be rolled out in phases to ensure a smooth transition for businesses and organisations affected by the changes. Here’s a breakdown of the key milestones:

Late 2023 - Early 2024

The first set of changes to Companies House’s internal processes and systems will be implemented. This will involve backend upgrades to support the forthcoming reforms.

Companies House will begin training its staff on the new powers and responsibilities, ensuring they are prepared to take a more active role in querying and rejecting suspicious filings.

March 2024

The Registrar’s new powers to query and reject filings will come into effect. From this point onwards, Companies House will be able to take a more proactive role in ensuring the accuracy and reliability of company information.

Early 2025

The mandatory identity verification system will be introduced. By this point, all company directors, PSCs, and those submitting filings will be required to verify their identity before they are able to interact with Companies House. This is expected to be one of the most impactful reforms, making it much harder for criminals to establish and control companies anonymously.

2025-2026

Reforms to the registration and operation of Limited Partnerships (LPs) will be rolled out. These changes will introduce stricter criteria for LP registration and introduce ongoing compliance requirements, reducing the risk of LPs being misused for criminal purposes.

2027

By 2027, all the reforms introduced by the Economic Crime and Corporate Transparency Act will be fully in place, and Companies House will have transitioned to its new role as a proactive regulator of corporate information.

Following Accounts Reform

After the accounts reform, Companies House will implement several key changes:

- Mandatory Software Filing: All accounts must be filed using software, with new zip package functionality for package accounts.

- Removal of Abridged Accounts: Small companies and micro-businesses will no longer have the option to file abridged accounts.

- Profit and Loss Accounts: All companies will be required to file profit and loss accounts, while small companies must also include a directors’ report.

- Audit Exemption Requirements: Companies claiming an audit exemption must provide a detailed statement from their directors, confirming their eligibility for the exemption.

- Accounting Reference Periods: There will be limits on how often a company can shorten its accounting reference period.

Following Restrictions on Corporate Directors

Following new restrictions on corporate directors:

- Natural Person Requirement: All corporate directors must have an all-natural person board.

- Identity Verification: All directors of a corporate director must verify their identities for registration.

- UK Corporate Entities Only: Only UK corporate entities with legal personality can serve as corporate directors, prohibiting overseas companies from doing so in the UK.

Conclusion

The Economic Crime and Corporate Transparency Act represents one of the most significant overhauls of the UK’s corporate governance framework in recent years. Companies House will be empowered to take a more active role in ensuring the accuracy and transparency of company information, helping to protect the UK’s economy and national security.

By introducing mandatory identity verification, enhancing the powers of the Registrar, and reforming the way Limited Partnerships are registered, the Act will create a safer, more transparent environment for businesses to operate. With a phased implementation plan stretching through to 2027, Companies House is committed to ensuring a smooth transition to this new framework, safeguarding the integrity of UK companies for years to come.

How can Mercia help?

Mercia offers a range of training courses, support products including manuals to aid compliance with the regulations and offers a comprehensive technical query service for advice on your specific circumstances.