The Economic Crime and Corporate Transparency Act (ECCTA) is now law and will have significant impact on how companies interact with Companies House. Here we look at how it will most directly affect the running of UK companies. When and how will things change and what must companies do to comply with the new rules?
When will the changes come into force?
There are three changes Companies House has said will be among the first to come into force, perhaps in early 2024. This is because these laws are unlikely to need any secondary legislation before coming into effect. They require Companies House systems development and the clarification of practical details but are legally quite straightforward.
- A requirement for all companies to provide an appropriate registered email address
- New statements of lawful purpose and appropriate address
- A ban on using a P.O. box as a registered office address.
We explain these further on in this article.
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The rest of the changes are more complex to implement. Many of the details will be clarified via secondary legislation in the months following the Act, supplemented by practical guidance and procedures from Companies House. For example, it will become clearer how identity verification will work in practice. Due to the wait for secondary legislation, some changes are unlikely to be effective until 2025 at the earliest.
The following are the main areas we believe will affect companies and accountants filing to Companies House for them.
New Registrar’s powers
The ECCT Act will provide for a major shift in the role of Companies House from passive recipient of information to active gatekeeper. The Registrar will have the following new powers:
- Cross-check and query information presented by companies and those acting on their behalf
- Reject or remove information that she finds suspicious, false, fraudulent or incorrectly formatted
- Impose financial penalties for Companies Act breaches
- Annotate the register to let users know there are issues with the information the company has presented
- Chase down and remove inaccurate information where practical
- Require delivery of information via specified electronic means
- Change a company’s name if the company fails to comply with a direction to do so
- Place restrictions on companies shortening their accounting reference periods
- Impose civil penalties for non-compliance with regulations
- Report criminal actions to law enforcement agencies
- Supply information requested by government departments and law enforcement agencies as part of an investigation.
How exactly these powers are to be enforced remains to be seen because it will depend on new statutory instruments and other legal refinements to the Act. These can take months to be drafted, presented to parliament and approved.
Identity verification of directors and PSCs
Companies with the names of cartoon characters as directors and other absurdities have been an embarrassment for the UK for many years. The lack of identity checks has made it easy for fraudsters and money launderers to exploit the system and create networks of companies designed for economic crime. The ECCT Act aims to build identity verification into key transactions with Companies House, which will increase public confidence that company officers are who they say they are and can be held accountable.
The Act will require individuals in the following roles to be ID verified to legally proceed in their functions:
- New and existing company directors
- Persons with significant control (PSCs)
- Directors of relevant legal entities (RLEs)
- Anyone making filings to the Registrar on behalf of a new or existing company. This could be a legal advisor, accountant or company officer such as director or company secretary.
- Quite likely via secondary legislation, members of LLPs.
There will be two routes for identity verification:
- Directly with Companies House
- Via an authorised corporate services provider (ACSP), a new role created by the Act. ACSPs will be professional intermediaries like accountancy firms, legal advisers or company formation agents who are themselves ID verified and regulated by an anti-money laundering (AML) supervisory body. Their checks will carry a level of assurance equal to direct verification with Companies House.
Statutory accounts changes
The accountancy profession was part of the government’s consultation phase which led to the drafting of the ECCT Act. It was suggested in this phase that the minimal accounts information required from small and micro-entity companies did not provide enough transparency to justify the protection of limited liability. The ECCT Act introduces measures to rectify this. Read more in our dedicated article on changes to Companies House accounts filing.
The filing of abridged or filleted accounts will be abolished for small and micro-entity companies. This means that micro-entities will have to file an income statement (profit and loss account) where previously they have only needed to file a balance sheet. Small companies that are not micro-entities will also have to file a director’s report.
Companies House’s stated vision for company accounts is a simplified way of filing accounts that is secure, transparent, and traceable. Traceability will be largely achieved via digital tagging of accounts data, which will become mandatory over time following the Act. There will be a move towards the filing of accounts at Companies House via approved software capable of iXBRL tagging.
Paper and WebFiling will eventually cease to be options for filing accounts. CATO (Company Accounts and Tax Online service, the joint filing service that Companies House has with HMRC) will also be removed. This will mean that many accountancy firms and anyone filing accounts with the Registrar will have to find compliant accounting software.
Companies claiming an audit exemption, including dormant companies, will be required to state on their balance sheet:
- the exemption they are using
- that the company meets the qualifying criteria.
Companies House have not published a timescale yet for the accounts changes, but they have offered assurance that they will allow sufficient time for companies and accountants to get prepared. Changes are likely to be implemented in several phases, with the changes to the simplest accounts (dormant and micro entity accounts) most likely to be implemented first.
Changes to the register of members and local registers
To enhance transparency of company ownership, the Act will require more detailed shareholder information. Where it is kept is also going to change. Companies that have kept their register of members (shareholders) on the central register at Companies House will no longer have that option. Companies must now keep their own local register. The following are points of note for future local registers of members:
- Members’ names must be given in full. Initials of first names are not permitted.
- Members’ service addresses must be included.
- The local register must include all past changes that were made on the central register.
- There will be a one-time requirement for private companies to provide a full list of shareholder names in their next confirmation statement.
- Secondary legislation will make it mandatory for companies to disclose whether any of their shareholders are acting as nominees. They will be obliged to provide information including the shareholding, the nominee (past or present) and information about the person for whom the nominee holds or held the shares.
- Secondary legislation may require the collection of further additional information on shareholders.
Other than the register of members, the requirement for companies to keep their own registers will be abolished for the:
- Register of directors
- Register of directors’ residential addresses
- Register of secretaries
- Register of PSCs.
All changes to directors and PSCs must be reported to the registrar and will be stored centrally at Companies House. These filings can be made via approved software such as Inform Direct.
Many companies will choose to continue keeping local registers of directors and PSCs as they are built into their internal processes and constitute useful references (for example, when the company is sold). Inform Direct has full functionality to create and maintain local registers.
Appropriate registered email address and office address
New requirements enable the Registrar to contact companies with reasonable certainty that the communication will receive the attention of company officers. These measures aim to stamp out the use of email and street addresses that are rarely or never checked for communications from Companies House. Unimpeded two-way communication is the goal.
Companies are required to maintain an ‘appropriate email address’, defined as ‘… one at which, in the ordinary course of events, emails sent to it by the Registrar would be expected to come to the attention of a person acting on behalf of the company’.
This registered email address will not be made available for public inspection. It must be supplied in the company’s first confirmation statement after the requirement comes fully into force.
There is a requirement to maintain an appropriate registered office address (street address) for each company according to a similar definition:
(a) a document addressed to the company, and delivered there by hand or by post, would be expected to come to the attention of a person acting on behalf of the company, and
(b) the delivery of documents there is capable of being recorded by the obtaining of an acknowledgement of delivery.
Companies must provide a declaration that their address is still appropriate in the first confirmation statement following a change of registered office address.
PO box addresses
The Act will prohibit the ongoing use of PO box addresses as registered addresses. PO box fields will be removed from incorporation and change of registered address forms.
New statements and declarations
There is a requirement for a new ‘lawful purpose’ statement. At incorporation, members must provide a statement that the company is being formed for lawful purposes. Additionally, there is a requirement for confirmation statements to contain a declaration that the intended future activities of the company are lawful.
Other new required statements are:
- that the directors’ identities are verified
- that a newly registered address is appropriate
- that a company seeking audit exemption (even if it is dormant) qualifies for the exemption.
Corporate directors can be used to obscure ownership and control. It has long been the government’s intention to restrict their use, and now it is happening. Alongside the Act the government plans to bring into force provisions to eradicate confusing chains of corporate directors. These provisions were introduced in the Small Business, Enterprise and Employment Act 2015.
Under the newly enforced rules, a company cannot have a corporate entity as one of its directors unless all of that company’s directors are natural persons and have had their identities verified. This limits companies to a single ‘layer’ of corporate directors. They must also be UK-registered; this ties in with laws already passed in the Economic Crime (Transparency and Enforcement) Act 2022, such as the Register of Overseas Entities.
There will be a 12-month window once the relevant provisions have come into force, during which companies must ensure that their corporate director is compliant with the above rules or remove them.
Inform Direct are collaborating with Companies House to respond to the practical implications of these new laws as they emerge. In order to serve the accountancy profession, Inform Direct will be watching closely as secondary legislation emerges following the Act. As soon as we know the details of things like the new accounts formats for small and micro companies and what the Registrar’s new powers mean in practice, we will communicate them via this blog. We are already working with our development team to analyse the Act’s requirements and build the optimal solutions into Inform Direct.
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