Economic Crime and Corporate Transparency Act 2023

To facilitate this, the Act implements provisions about companies, limited partnerships and other kinds of corporate entities, and around the registration of overseas entities.

The legislation impacts all those who interact with Companies House, whether individuals or entities. This includes all directors, secretaries and people with significant control of entities registered at Companies House, as well as the entities themselves, including companies, limited partnerships, limited liability partnerships and overseas entities. There is also an impact on agents of such entities, such as those who provide company secretarial services. This article focuses on the provisions most likely to impact UK entities and associated individuals.

Although the Act has now received Royal Assent, it is not yet in force. A number of Statutory Instruments will be required to bring all provisions in the Act into force. Companies House anticipate that some provisions will become law as early as Spring 2024.

Key considerations for entities registered at Companies House and their directors

1.       Identity verification

1. In order to enhance transparency of controllers and owners of businesses on the Register, Companies House will introduce mandatory ID verification for directors, company secretaries, people with significant control and others associated with those entities, such as their agents. This will cover both UK-resident and non-UK-resident individuals, and covers all nationalities.

Going forward, directors will need to have their ID verified, and a statement made to Companies House to this effect, before they can take up this position; they will not be considered legally appointed until the ID verification process is completed, and will be unable to act in that capacity or make filings at Companies House. For people with significant control (PSCs), the individual will have 14 days from the date they obtain control to have their ID verified. There will be transitional arrangements put in place for those already acting as directors or PSCs.

The verification process will take place either with Companies House itself, through an online platform, or via checks carried out by an Authorised Corporate Service Provider, being any entity required to report under UK AML legislation. This includes accountants, solicitors, estate agents and similar professional firms.

For corporate directorships, similar provisions will also apply. A UK company will only be able to be appointed as a corporate director when all its directors are natural persons, and those natural persons are subject to appropriate ID verification checks. Non-UK companies will no longer be permitted to act as corporate directors.

These provisions also extend to directors of overseas companies registered at Companies House.

2.       Improving financial information on the Register

Currently 3.1 million sets of accounts are published on the Register each year, and access to these accounts is arguably the most valuable service that the Registrar provides.  Companies House will require all financial statements submitted to be in Inline Extensible Business Reporting Language (iXBRL) format. These tags are machine readable, which will make the data easier to interrogate, compare and check, aiding Companies House in carrying out new responsibilities around maintaining the integrity of the data it holds, identifying and addressing errors, and sharing data under certain strict conditions with other bodies such as law enforcement. Companies House currently accepts accounts in iXBRL format, as well as in paper format, and most companies are currently required to include a set of accounts in a similar, but not identical, format when filing their corporation tax returns with HMRC.

Under existing law, there exist reduced filing options for some companies, where they meet the “small” or “micro” criteria set out in the Companies Act 2006. Such entities currently have an exemption from filing their Profit & Loss Account, and for small companies, Directors’ Report (a micro company is exempt from having to prepare a Directors’ Report). These reduced filing options will be removed, meaning small and micro companies will file their full financial statements, including a Profit & Loss account and Directors’ Report (where applicable), which will be publicly available. For such entities that are audited, the audit report will also be required to be filed.

3. Failure to Prevent (FTP) Fraud offence

A new corporate offence has been created, in an attempt to reduce fraud perpetrated through UK companies. A company meeting the size criteria of a large company will be considered guilty of an offence if a person associated with that company commits a fraud offence, with the intention to benefit that company, its subsidiaries, or any individual to whom that associate provides services. A person associated with a company could be a director, an employee, or anyone who provides services to the company, such as a subcontractor. The only defence against this offence will be for the company to demonstrate they had in place such prevention procedures as would be reasonably expected, to mitigate against the possibility of fraud, as far as practicable.

This will not apply if the company was the intended, or actual, victim.