Economic Crime and Corporate Transparency Act: What small businesses need to know

Changes described as the biggest shakeup to Companies House in its 180-year history have been introduced by the government.

The reforms have been introduced in the Economic Crime and Corporate Transparency Act which received Royal Assent on Thursday.

Designed to prevent organised criminals and fraud, the regulations give Companies House enhanced powers to verify the identities of company directors, remove fraudulent organisations from the company register and share information with criminal investigation agencies.

Small business minister Kevin Hollinrake said:

"We're providing Companies House with the tools to take a much harder line on criminals who take advantage of the UK's open economy, ensuring the reputation of our businesses is not tarnished by the UK playing host to the world's scammers.

"These reforms will remove the smoke and mirrors around companies hiding behind false identities, provide further protection to the public from companies fraudulently using their addresses, and deliver better data to support business and lending decisions across the economy, enhancing the UK's reputation as a great and safe place to do business."

The main changes affecting small businesses

• All limited companies and others registered with Companies House required to file a profit and loss account, showing their turnover and profit. Most companies are currently exempt from doing this because they are classified as 'small' or 'micro'. Small and micro companies preparing abridged or full accounts currently don't have to file a copy of its profit and loss account and/or the director's report with Companies House.
  
  The government says "this minimal level of disclosure has the potential to appeal to fraudsters wishing to present a false image of the company". Companies House says the change will make it easier for lenders and creditors to determine the creditworthiness of small businesses. More details here.

• New verification checks will assess the identities of people setting up and managing companies, which the government says will stop criminals hiding behind false names or registering companies with fictional characters.

• All directors, people with significant control, and those delivering documents will have their identities verified.

• Greater powers for Companies House to query information. This means officials can scrutinise and reject information that seems incorrect or inconsistent with information already on the register. In some cases, they will be able to remove information.

• New rules for registered office addresses which will mean all companies must have an appropriate address at all times. Companies will not be able to use a PO Box as their registered office address.

• All companies will be required to supply a registered email address.

• All companies will be required to confirm they're forming the company for a lawful purpose when they incorporate. Every year, the company will need to confirm that its future activities will be lawful on their confirmation statement.

• Some Companies House fees will increase to cover the cost of the new activity.

Some of the measures in the Act, such as identity verification, require system development and secondary legislation before they're introduced. Other measures are expected to come into force in early 2024.

Enterprise Nation's reaction

Commenting on the changes, Daniel Woolf, head of policy and government relations at Enterprise Nation, said:

"As a matter of principle, small businesses will welcome government action to tackle organised criminals and fraud which, when left unchecked, considerably damage businesses and the wider economy.

"But it is important that these proposals are implemented in a way that minimises the added regulatory burden that may be placed on small businesses, which are facing a challenging economic climate.

"For example, emerging technologies, such as open banking and smart data, could be leveraged to help ensure that businesses are provided with an efficient and easy-to-use method to submit the necessary information when registering on Companies House.

"Enterprise Nation is ready and eager to work with the government to ensure that these proposals are implemented in a business friendly manner, preserving time and resources so entrepreneurs and start-ups can focus on growing their business."

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