The Economic Crime and Corporate Transparency Act 2023 – impact on accountants and their clients

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The government’s Economic Crime and Corporate Transparency Act 2023 (‘the Act’) received Royal Assent on 26 October 2023. The Act contains important amendments to the Companies Act 2006 and other changes accountants need to be aware of. While many of the changes introduced by the Act will require secondary legislation to be enacted, some changes are planned from 4 March 2024. These include new identity verification requirements for company directors, persons with significant control (PSCs) and members of a limited liability partnership, and the information companies must submit to Companies House for inclusion in the public register.

The reforms seek to strengthen arrangements to prevent money laundering, fraud and corruption, identity theft and other economic crime. The government has published a useful factsheet to help understand how the reforms affect companies and professionals who work with them, including accountants.

The reforms expect Companies House to adopt the role of ‘gatekeeper,’ protecting the UK economy and individual businesses from fraud and other financial crime. This means company directors, company secretaries and their professional advisers will need to meet new responsibilities, as shown below.

Identity verification

 Companies House is introducing identity verification for all new and existing company directors, PSCs, and those submitting documents to Companies House on behalf of a company. This means anyone setting up, running, owning, or controlling a company in the UK will need to verify their identity. Companies House is due to publish more information about when these changes will come into effect and how the identity verification process will work. While no action is needed yet, the changes will have an impact on anyone setting up, running, owning, or controlling a company in the UK.

For directors of new companies, identity verification (for directors and PSCs) will need to take place before an application for the formation of a company is made. After incorporation, any new directors must verify their identity as soon as possible, and before their appointment is notified to Companies House. Members of a limited partnership will also need to verify their identity.

For existing companies, all directors (or equivalent) and PSCs will have a transition period to verify their identity with Companies House. Directors who do not comply by the end of the transition period may face criminal sanctions or civil penalties, and the company’s register will reflect any unverified status.

Anyone acting on behalf of a company will also need to verify their identity before they can file information for the company. Individuals may verify directly with Companies House, or through an authorised agent. Verifying identity directly with Companies House means using ID documents, such as a passport. Agents such as company formation agents, solicitors or accountants already have anti-money laundering (AML) arrangements in place to verify identity and Companies House expects to build on these existing rules.

The Act introduces a criminal offence for any breach of the new rules and civil penalties may also be applied.

Filing Financial Information

The government wishes to improve the scope of financial information published by Companies House, making the public register more accurate and using modern technology for submitting documents. This means a transition towards filing accounts using software and the withdrawal of web-based and paper filing of information. The new rules apply to directors who file their own accounts, and companies who use third party agents such as accountants to file. The requirement to file accounts using software will be phased in over the next two or three years and a detailed timetable is awaited.

Financial information filed by small and micro companies is changing

Currently, a small or micro company that prepares abridged or full accounts does not have to file a copy of its profit and loss account or director’s report with Companies House. The government believes this approach is open to fraud and abuse. The government is therefore changing the scope of information filed for small and micro-entity companies who will now need to file a profit and loss account. The details will be set out in secondary legislation in due course. The option to file ‘abridged’ accounts is being removed.

Any company claiming an audit exemption will need to give an additional statement from their directors on the balance sheet. Directors will need to specify which exemption is being claimed and confirm that the company qualifies for the exemption.

Other record keeping

Companies and non-traded companies must provide Companies House with a one-off confirmation statement containing specified information. For a traded company, the statement must include the name and address of each person who, at the end of the confirmation date, held at least 5% of the issued shares of any class of the company, and the number of shares of each class held by each such person at that time. For a non-traded company, the statement must confirm the name of every person who was a member of the company at the confirmation statement date, and the number of shares of each class held by each person who was a member of the company at that time.

By introducing these new requirements, the Act effectively removes the requirement for companies to maintain their own register of directors, secretaries, and PSCs. All relevant information relating to these categories will be held on the public register at Companies House. In specific circumstances, where individuals are at risk of fraud and other harm, the information will not be published.

Registered office addresses

From 4 March 2024 companies must have an ‘appropriate address’ as their registered office. An appropriate address means any documents sent to the registered office can be delivered to a person acting on behalf of the company and where acknowledgement of delivery can be obtained. These changes mean companies cannot use a PO Box as a registered office address. Companies can still use a third-party agent’s address if they meet the conditions for an appropriate address.

Companies currently using a PO Box as a registered office address will need to change it by 4 March 2024 online, using the company’s authentication code.

Companies that do not have an appropriate registered office address could be struck off the register. The company must then provide an appropriate address, with evidence of a link to that address, within 28 days. A company may be struck off the register if it does not provide an appropriate address.

Registered email address

From 4 March 2024, all companies must provide a registered email address to Companies House. This email address will not be published on the public register.

Also, from 4 March 2024, new companies will need to give a registered email address when they incorporate. Existing companies will need to give a registered email address when they file their next confirmation statement with a statement date from 5 March 2024. Companies House online services will contain a prompt to supply a registered email address when the next confirmation statement is filed.

Companies House will use the email address to communicate with a company, so it’s important an appropriate email address is maintained. The same email address can be used for more than one company. Companies will have a duty to maintain an appropriate registered email address, in the same way as their registered office address. Any company that does not do this will commit an offence and enforcement action will follow.

Statement of lawful purpose

Companies incorporated from 4 March 2024 will require shareholders to confirm they are forming the company for a lawful purpose and confirm the company’s intended future activities will be lawful on the confirmation statement. The intention of these new statements is to make it clear that all companies on the register have a duty to operate in a lawful way.

Existing companies will need to make a lawful purpose statement when they file their next confirmation statement with a statement date from 5 March 2024. Companies House online services will contain a prompt to confirm this when the next eligible confirmation statement is filed

Enforcement

The Act provides Companies House with more effective investigation and enforcement powers and introduces better cross-checking of data with other public and private sector bodies. Companies House will share information with other bodies to ensure enforcement with criminal and civil penalties where they have evidence of suspicious filings or behavior.

Next steps

As highlighted above, more detail is awaited on how to implement some of the changes introduced by the Act. Companies House will publish more guidance and secondary legislation will be enacted by the government in due course. If you are an accountant responsible for filing information with Companies House on behalf of your clients, there are steps you can take now to prepare, including:

  • notifying your clients about the new rules due to be introduced for identity verification and seeing what support they may need
  • looking critically at your processes for filing financial and other information with Companies House, ensuring that company records, including those relating to shareholders, PSCs and directors are complete and accurate to meet the March 2024 deadline
  • ensuring you have appropriate accounting software to file accounts when Companies House remove web-based and paper filing arrangements.

Company Secretarial Services by Initor Global

Initor Global has been providing outsourced Company Secretarial services to UK accountants and other businesses since 2006. Ensuring compliance with the government’s rules can be daunting, and penalties from Companies House can be excessive if information is not filed when due or is incorrect. The reputational damage to businesses can be considerable in the event Companies House or HMRC decides to act when a company director does not meet their legal responsibilities.

Our professional team provides all the Company Secretarial services your limited company clients need, with our rates typically 50% less than the equivalent service in the UK. All services are delivered to the highest professional and quality standards your Practice expects.

If you are looking to take your Practice to the next level, and provide effective company secretarial services while reducing costs, you can arrange a free consultation with our expert team.

We offer a free, no-obligation trial of our services.

Please contact us on hello@initor-global.co.uk  or visit our website at www.initor-global.co.uk.

You can also call us on 0203 519 2121.

Disclaimer
This guide draws on information published by HMRC and other professional bodies. It is not a complete guide to the Economic Crime and Corporate Transparency Act 2023. Information may be subject to change and Initor Global accepts no responsibility should you decide to rely on the information we have published in this blog. Professional advice should always be taken as necessary based on your individual circumstances.