Why Companies House reform is important for SMEs
December 13, 2022
The inability of Companies House (CH) to police and quality control the data it puts on its Register and the implications for people depending on it has long made the UK’s claims to be a sophisticated business environment a laughing stock around the globe.
Amongst other consequences has been the transformation of London into one of the world’s most prolific venues for laundering dirty money or the ‘London Laundromat’ as some cynics have dubbed it. Now we have that nice man in the Kremlin to thank for forcing the government into finally doing something tangible about it through the Economic Crime and Corporate Transparency Bill, which is currently making its way through Parliament.
The legislation contains a host of measures aimed at cleaning up our act, so it’s time to lift the lid on this ambitious new law to see why it matters for SMEs, why they should comply and the downsides for not doing so. Here, we look at the most important issues that Companies House reform throws up.
Identity verification
For too long there have been endless stories in the media whenever some financial scandal erupts, revealing that the company involved has directors called M Mouse or D Duck. Up to now, CH has had no power to check this nonsense, nor to refuse to register such companies.
Now a whole host of people must have their identity verified by the company, with which they are associated and confirmed as having been verified to CH, including directors, secretaries, persons with significant control (PSCs) and even anyone who just submits documents to Companies House for registration. The precise details of what counts as acceptable verification have yet to be published, nor have what records the company needs to keep about their verification procedures and outcomes.
The new identification verification requirement covers all existing connected persons, not just new appointees. Non-compliance means a fine for the company and its officers, as does acting as a director without having already been identity-verified.
Company names
The list of reasons why Companies House can object to a company name includes names:
- suggesting a connection with foreign governments
- with a criminal purpose
- containing computer code
- with misleading indications of activities
CH can order any company failing these tests to change its chosen name and must approve the new name. Here too, failure to comply also leads to fines levied against the company and its officers. CH can also choose and impose a new name for the company in the event of non-cooperation.
There are exemptions in the interests of national security or preventing crime, but this would be a rare occurrence.
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Lawful activities
In future, companies must include a statement in their annual confirmation statement submitted to Companies House that their future activities will be lawful, not that anyone would be likely to say the opposite. But silence on this is not golden, it too brings the risk of a fine.
Local registers
Here we come to one of the administrative upsides of the proposed changes. One minor but irritating headache has long been the requirement for every company to keep its own register of details, such as of its directors and their addresses, its secretaries and any PSCs. This has been abolished, provided that the information has been notified to CH for inclusion in its central register.
Registered email address and registered address
Every company must in future have both an email address for electronic communication purposes and a registered physical address, each of which must be ‘appropriate’, meaning that documents and correspondence sent to them will be brought to the attention of the company or a person acting for it, such as accountant or a lawyer. Failure to do this can result in a fine.
Correcting inaccurate information
There will be far greater scope and simplicity for the correction of the mass of erroneous information already at Companies House and future mistakes, in a move away from the cumbersome current practice of requiring a court order to amend CH records.
Why does Companies House reform matter to SMEs?
All this increased transparency means that in theory, businesses will have a much better chance of avoiding being scammed by phoney clients, suppliers or service providers through having a much clearer understanding of them and who the people behind them really are.
This cuts both ways, because potential clients, suppliers and service providers are much more likely to do business with an SME which has demonstrated that it is bona fide.
The final reason is that non-compliance is going to be costly and persistent failure is going to be extremely expensive. As well as initial fines, there will be daily fines for ongoing default.
Will theory turn into practice with Companies House reform?
The proposed new law has received a generally positive welcome from the business and professional community, though with the inevitable reservations that it does not go far enough in some areas. What is a more serious concern is whether CH will be adequately resourced to police the new requirements and then to enforce against those who break them. As a wise observer recently wrote: “laws without enforced consequences are merely suggestions”. We all know what happens to inconvenient suggestions.
What next for SMEs?
Once the current bill has become law, probably in the first few months of 2023, there will be work for SMEs to do to ensure full compliance, as the new requirements are retrospective in certain respects. It’s time to start a conversation now with a professional advisors to set the ball rolling, rather than waiting until then, when this will have turned into a last minute panic.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.