25 March 2022
Introduction
The government is accelerating the planned changes to Companies House, having now issued its corporate transparency and register reform whitepaper with the detailed proposals, accompanied by a draft economic crime Bill.
The impact of these proposed changes is potentially significant. For example, to increase transparency in annual filings there will no longer be options for abridged or filleted accounts for micro and small companies, removing some of the privacy previously enjoyed by these entities. (full accounts will now have to be filed).
Abridged and ‘filleted’ accounts
The changes will be the increased transparency required in annual filings.
Now where all the shareholders agree, small companies can currently take advantage of the ability to abridge their accounts. This reduces the detail in the accounts that both shareholders and Companies House receive, compared to the basic small company provisions. The option for abridged accounts will now be scrapped.
Current requirements permit a small entity to omit the profit and loss account and related notes, together with the directors’ report, when filing at Companies House. Removing this filleting option means that all companies will have to file a profit and loss account as well as a balance sheet and small companies will have to file their directors’ report. Micro-entities (your company may be a micro-entity if it meets two of the three following criteria: turnover of £632,000 or less; assets of £316,000 or less; 10 employees or less) will retain an exemption from the requirement to prepare or file a directors’ report, however.
Digitally tagged accounts
It is incredibly simple to set up a new company in the UK and there is no requirement to verify the directors’ identities. With new changes directors or their agents will have to file digitally tagged accounts, using iXBRL. Once information is tagged it can be easily searched and cross-referencing with data held by HMRC.
The registrar will have greater powers that will help in the fight against economic crime. Their role will be to promote and maintain the integrity of the register and they will have new powers to query information and share data with other authorities. The registrar can also apply fines when company directors or secretaries fail to meet their responsibilities and to remove incorrect information from the register.
Verifying identity with Companies House
If you are setting up a company or making filings, you will have to have a verified identity with Companies House. There will also be restrictions on the use of corporate directors and officers, to maintain a direct link to natural persons.
The unexplained wealth order changes
The Act has also introduced a number of reforms to Unexplained Wealth Order (UWO)s, which require individual respondents to explain the source of funds for obtaining specified assets. The key changes introduced by the Act include: Limiting the availability of costs orders against applicant enforcement agencies to circumstances in which the enforcement agency: (i) acted unreasonably in making or opposing the application for a UWO; or (ii) acted dishonestly or improperly in the course of the proceedings.
Allowing enforcement agencies to apply to the High Court for more time to review information provided by the respondent to a UWO.
Creating an additional test to be able to grant a UWO, namely whether the court is satisfied that the specified assets have been obtained through unlawful conduct.
When will these changes start?
The speed of implementation varies: Economic Crime (Transparency and Enforcement) Act 2022 was passed into law on 14 March 2022, but changes to the accounts will take longer.
Summary
New legislation introduces further sanctions powers and aims to tackle financial crime by revealing identities of overseas beneficial owners of UK property.
With new changes a win for simplicity, as the accounts to be filed will be exactly those that have been prepared for shareholders. It is also a good for companies that need credit, as under the current regime credit rating agencies can rarely gather sufficient information from Companies House to form an opinion on a small or micro-entity’s credit worthiness. The downside for many, is the loss of privacy due to the publicly filed profit and loss accounts.
For further information on any of the points above contact
Mikita Makayou at mikita@lexefiscal.com, or
Dr. Frank at clifford.frank@lexefiscal.com.