Companies House Set for Reform
Posted 4 years ago by Tracy
Companies House plays a vital role in the UK’s reporting framework. Not only is Companies House responsible for incorporating and dissolving limited companies in the UK, but it also has a responsibility to examine and store company information, and make that information available to the public.
With over 500,000 new companies incorporating every year, and over 4 million existing limited companies on the register, it’s crucial that Companies House has information that is collected efficiently while being accurate and transparent.
On 5 May 2019, Companies House and the Department for Business, Energy and Industrial Strategy published a consultation "Corporate Transparency and Register Reform". These reforms, if introduced, would represent "the biggest changes to the UK system for setting up and operating companies since the UK company register was created in 1844."
Why are reforms needed?
Companies House tries to make doing business in the UK as easy as possible, but concerns have been raised that its system is being misused by a few select groups, particularly when it comes to information abuse and crime.
For example, it was revealed in 2016 that 76 beneficial owners shared names and birthdays with individuals on the US sanctions list, and there is a high likelihood that UK companies are being used by international criminals to launder money.
Another worry for Companies House is how to deal with false information, as some companies have deliberately filed fraudulent audit reports, appointed fraudulent directors, or listed false addresses.
With the information on Companies House accessed over 6.5 billion times in 2018, there’s a clear case to be made to make information as accurate and truthful as possible to preserve user confidence.
There’s also the issue of data security. Not only have there been complaints of thieves stealing the identities of directors by using their publicly available details, but there are also concerns that having personal information publicly available on the register may put certain groups at risk, such as victims of domestic abuse.
Although the vast majority of entities registered with Companies House are legitimate and their information is correct and complete, the proposed reforms in the consultation hope to stamp out misuse by the few.
What changes can we expect?
The reforms proposed are wide-ranging and ambitious, with the consultation document itself running to 80 pages. Broadly, the consultation identifies five main areas for change. The key items are highlighted below:
1. Knowing Who Is Setting Up, Managing and Controlling Corporate Entities
One of the main issues with the current Companies House framework is that it only has the power to record information, not verify it. The consultation makes this point abundantly clear:
"Companies House does not have, and has never had, the powers to confirm that the personal information provided about directors, shareholders, People with Significant Control, and presenters is true."
As part of the reforms, Companies House would have the power to verify the identity of key individuals in companies, such as directors, People with Significant Control (sometimes known as beneficial owners) and those filing information. The consultation also considers whether identity verification should apply to certain shareholders. If enacted, these checks would be no mean feat, given that there are 6.7 million directors listed on the register, as well as 4.6 million People with Significant Control.
2. Improving the Accuracy and Usability of Data on the Companies Register
One of the other issues facing Companies House is the accuracy of the data held on the register.
Although accuracy rates are regarded as high (estimated to be around 90%) some companies file inaccurate data, whether that relates to false audit reports, listing a company address the company has no right to use, or appointing individuals who have no association with the company.
Under the new reforms, Companies House would be given greater power to check the information it receives about a company before it puts that information on the register. The changes would also make it easier for inaccurate information to be removed.
This part of the consultation also considers whether minimum iXBRL tagging standards should be introduced for company accounts, in order to improve the accessibility and consistency of the information within company financials.
3. Protecting Personal Information
Although further information can help improve the accuracy and reliability of data held by Companies House in many ways, having this information shouldn’t come at a cost to the privacy of individuals or pave a way for personal details to be abused.
The consultation proposes that the vast majority of additional information collected about directors, People with Significant Control, and the like, would remain private (i.e. it would not be made available on the public register).
When it comes to information held on directors, there are also proposals to suppress certain aspects of a director’s personal information. For example, directors would be allowed to apply to have the day of their birth removed from the public register in respect of historic filings (i.e. pre-October 2015).
4. Ensuring Compliance, Sharing Intelligence, Other Measures to Deter Abuse of Corporate Entities
The reforms proposed in this part of the consultation are designed to help deter the abuse of UK corporate entities, while also improving data held on the register by cross-checking information with other bodies.
One of the key proposals is to require UK companies to give Companies House notice within 14 days of when a non-UK bank account is opened. The details of this account can then be given to law enforcement if requested.
Wider cross-referencing of data held by Companies House with other bodies (both government and private sector) is also considered in the consultation. Cross-referencing could help ensure the accuracy of data held by Companies House and may also identify cases where fraudulent data has been submitted.
In fact, Companies House is currently "undertaking an exercise with HMRC to explore the differences in company accounts that are submitted to each."
Other proposals include giving Companies House the power to end the business activities of limited partnerships that are being misused, as well as the power to limit how many directorships an individual can hold at the same time.
5. Implementation
The way these reforms would be implemented in practice is two-pronged.
- Legislative changes would be required to the Companies Act to bring some of the changes into effect, such as the requirement to verify a director’s identity.
- At the same time, operational change would have to take place at Companies House.
The consultation acknowledges that Companies House’s systems are in need of a major upgrade, given that no significant redevelopment has been undertaken in the past 10 years. Changes to staffing and processes are also expected.
Reforms as extensive as these will not happen quickly, and the consultation openly acknowledges that it will take some years to deliver these changes.
One likely consequence of these reforms is higher Companies House fees. However, somewhat reassuringly, “the government fully expects them to remain very low by international standards.” When does the consultation close?
The consultation will remain open until 5 August 2019. Once the consultation closes, responses will be collected and reviewed, and a summary of all responses will be published on GOV.UK.
You can read the consultation in full here.
Further Reading
Key Takeaways from Spring Budget 2023: Corporation Tax Rises and Investment Zones
Autumn Budget 2021: Five Key Announcements for Small Businesses