Companies House reforms could be the game-changer businesses have been waiting for

A raft of new verification measures – and new powers for officials – should improve the service in the long run.

Significant Companies House reforms are expected to be made into law after part two of the Economic Crime Bill reached Parliament at the end of October.

Part one of The Economic Crime Act 2022 which was fast-tracked into law in March partly due to Russia’s invasion of Ukraine, improves the transparency of overseas entities and legally requires such entities to officially register and identify themselves and other beneficiaries.

Part two of the bill focuses on Companies House and involves:

• Verification of the identities of new and existing directors and those with ‘significant control’.
• Authorised corporate service providers such as accountants and professional advisers to register with Companies House prior to filing information.
• Ban on overseas corporate directors.
• Obligation to provide detailed shareholder information.
• New powers for Companies House to verify information with other organisations and request supporting evidence.
• New powers to remove suspicious or fraudulent information.
• Restrictions on company addresses.
• New powers to impose penalties for failure to comply with Companies Act obligations.

The proposed reforms submitted to parliament come as finance trade body UK Finance slammed Companies House as ‘dysfunctional’ due to its lack of checks and balances around fraud and there are minimal, if any, verification processes. 

The reforms should improve trust and transparency in the register of companies and prevent fraudulent business activities.

But what do accountants think? How effective are these reforms likely to be and how should businesses prepare?

Reforms will increase transparency and boost the integrity – depending on how Companies House executes the reforms

Taha Bahadur, Company Secretarial team, Oury Clark

Companies House reforms will require directors and those who make filings with Companies House to be verified by photographic ID. Before these reforms, a company could be set up with ‘Mickey Mouse’ as a Director with no issue.

Companies House will also be granted further powers to question, query and remove filings as well as raise suspicious and fraudulent filings to the relevant authorities. The discretionary power to remove filings is in stark contrast with the current regime which requires a court order.

There will also be scope to co-operate seamlessly with other government agencies such as HMRC to flag fraudulent and suspicious information.

These reforms will increase transparency and boost the integrity of the register, but it depends on how Companies House executes the reforms. A simple tick box checklist stating that the agent or person verifies the information to be true may be considered a verification process, but the effectiveness of this system may be questioned.

Generally, there is good reason to be hopeful. Significant proposals such as granting the Registrar the power to query filings is a large step forward when compared to the current way Companies House operates; with this in mind, the reforms may be seen as a positive step in the right direction in minimising financial crime.

Next steps: Directors, business owners, persons with significant control (PSC) and those that make filings for companies will need to register an account with Companies House and verify their identity. Failure to verify an account as a PSC will lead to their appointment being flagged and potential for a civil penalty to be imposed. Shareholders who potentially breach the PSC threshold should create a verified account once the reforms have been passed.

Verdict: Reforms will increase transparency and boost the integrity of the register – but it will depend on how Companies House executes the reforms.

Reforms may make it a lengthier process but will greatly improve information quality

Tom Cox, Abbeygate Accountancy

The reforms aim to cut down on fraud and crime. Companies House holds a huge amount of data and it isn’t always correct because there is no verification process. Anybody can input data, update accounts or remove entries. I can easily set up a company on Companies House, provide any name and address, and Companies House will let me do it.

So these reforms will be a big positive on reducing fraud and also when it comes to managing risk. Anyone looking to purchase a limited company or for businesses looking to take on a new client will soon be able to have full confidence in information provided on Companies House.

However, there is still a lot of work to be done. As long as Joe Public are allowed to file company information themselves instead of professional service companies such as accountants or solicitors, the risk remains and this is unlikely to change anytime soon.

The reforms may make setting up limited companies a lengthier process, but it will improve the quality of information.

Next steps: Before setting up a limited company going forward, it’s essential to seek professional advice and guidance. Businesses need to know how to manage that company in a safe and risk averse way. It’s about getting it right the first time whether reform is coming in or not.

Verdict: Reforms may make it a lengthier process but will greatly improve the quality of information.

Ensuring small and micro entities submit full accounts is a welcome reform

Clare Elliott (FMAAT), CFO, ILUX

The reforms are a significant and welcome step and will help enormously in tackling wider economic issues.

As it stands, it can be difficult for businesses who use Companies House to obtain the right information on potential clients and it can often be complicated to check accuracy. Some individuals appear to be serial directors who move around very quickly and it can feel like a maze, trying to work out who they are and which businesses they’re involved with.

Another issue with Companies House currently is that information is typically very out of date. Companies don’t have to file until a certain number of months after year end so information is often delayed. If I’m looking at financial statements now, in November 2022, the statements may relate to August 2021 but a lot can change in that time.

At the same time, small companies can submit abridged versions of accounts to Companies House but under the reforms, even small companies will be legally obliged to submit full versions of accounts. This is good news: small businesses make up 97% of our economy – so it’s essential that full and detailed information is provided by companies of any size.

Verdict: The move to ensure small and micro entities submit full accounts instead of abridged versions is a welcome reform.

Annie Makoff is a freelance journalist and editor.