Whether your law firm offers B2B services, or your practice itself requires this information to function seamlessly, this update is for you to read and share.
In 2023, Companies House introduced new legislation to improve the transparency of UK companies and other legal entities. The changes include introducing identity verification for people who register companies or file with Companies House. This will improve the accuracy of their data and support business decisions and law enforcement investigations.
The Economic Crime (Transparency and Enforcement) Act was introduced in March 2022, and Companies House is keen to play its part in tackling economic crime and improving corporate transparency to prevent a wide range of illegality, including illicit finance and money laundering.
One of the changes set out in the Economic Crime and Corporate Transparency Bill is streamlining the accounts filing options available to small and micro companies. Under this new framework, all small companies, including micro-entities, will be required to file their profit and loss accounts.
Having key information such as turnover and profit or loss available on the public register will help creditors and consumers make better-informed decisions.
What is the Economic Crime and Corporate Transparency Bill?
The Economic Crime and Corporate Transparency Bill is a government bill introduced in the House of Commons on 22 September 2022. At the time of writing, the final amendments were made to the bill during the third reading on 4 July and the next stage is that it goes to the House of Commons for consideration of Lords amendments on Monday 4 September 2023.
You can keep up to date with the bill here.
The bill’s objectives have the aim of preventing organised criminals, fraudsters, terrorists and kleptocrats from abusing the UK’s open economy by using law firms, companies and other corporate entities.
The bill aims to deliver reforms to Companies House, to prevent the abuse of limited partnerships, give businesses more confidence to share information in order to tackle money laundering and other economic crime, and provide additional powers to seize and recover suspected criminal cryptoassets.
Incorporated companies for law firm registration in the UK has a 55% of the sector having this model, as at June 2023. The SRA has the data here for your interest. It is interesting to note that ten years ago in June 2013, there were only 28% that were incorporated.
Incorporation is the process by which a new or existing business registers as a limited company. A company is a legal entity with a separate identity from those who own or run it. The vast majority of companies are limited liability companies where the liability of the members is limited by shares or by guarantee.
Companies House becoming a Gatekeeper to Economic Crime
The bill passing would change the role and purpose of Companies House. Legislative powers would be given to Companies House as their significant role in tackling economic crime. It looks like it will become an active gatekeeper of the data on its registers rather than a passive recipient.
Companies House Reforms for Accounting Professionals
There are a number of elements to the reforms that will impact firms due to the new legislation through the Economic Crime and Corporate Transparency Bill.
The following are the various factors to be aware of:
Filing requirements for accounts
All company accounts will need digital filing (rather than paper), and all companies no matter of size, will need to file a profit and loss account. The option to file abridged or filleted accounts will be removed.
ID verification
To help counteract identity fraud, ID verification will be required for new and existing company directors, as well as Limited Liability Partner (LLP) members.
For new companies and LLPs, all directors and members, together with people with significant control (PSCs), will need to complete identity verification before or as part of the company/LLP incorporation process.
For existing entities, all directors, members and PSCs will need to verify their identity within a set period.
New registrar powers
To help improve the integrity of information lodged at Companies House, the registrar will have the power to query, reject and remove information provided to the register, including existing information. The registrar will have the power to punish non-compliance by imposing sanctions on the entity. The registrar will also be given the power to share personal data and pass relevant information to certain public, regulatory and supervisory bodies, including law enforcement.
Corporate directors
There are proposals that all entities registered at Companies House must have at least one fully verified natural person directly associated with them on the register. Corporate directors will be restricted to only those entities that are registered in the UK.
Our Virtual Conference on 23 November 2023 will have various speakers including the SRA, VAT specialists, practice management consultants, professional indemnity insurance brokers, fraud specialists and more.
To register please click here.
On a side note, please remember that Companies House Direct (CHD) and its WebCHeck services are closing on 30 November 2023.
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