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City of London

The Economic Crime and Corporate Transparency Act 2023 - GBH Law

The Economic Crime and Corporate Transparency Act 2023 (Act) introduces a wide variety of reforms to tackle economic crime and improve the transparency of UK companies. The Act introduces the biggest shake-up in the 180-year history of Companies House, giving it greater powers to ensure that information filed is accurate and can be relied on, and creating new corporate criminal offences, and a new test for corporate criminal liability.

What You Need to Know

The Economic Crime and Corporate Transparency Act 2023 (Act) gives Companies House greater powers to challenge information that appears to be incorrect or inconsistent. In some cases, Companies House will be able to remove erroneous and misleading information from the registers or annotate the information filed on a company if that information appears confusing. The Act also empowers Companies House to cross reference and share information with other government departments and law enforcement agencies to identify discrepancies and economic crime.

The Act generally applies to all entities registered with Companies House including private and public limited companies, limited liability partnerships, limited partnerships and community interest companies. It will come into force in stages.

This article summarises imminent changes of which you need to be aware, action you should be taking now, and a summary of other changes on the horizon. 

Changes Effective from 4 March 2024

Registered Office Address

  • All companies must have an “appropriate address” as their registered office at all times. This is an address where documents can be expected to come to the attention of a person acting on behalf of the company and where delivery can be formally acknowledged.  It can be the address of a third-party agent (such as GBH Law’s address) if the address meets the requirement above.
  • A PO Box or other unstaffed address as their registered office address will not be permitted.
  • Companies House has the power to change an inappropriate address to a default address and any failure to comply could mean commencement of strike-off proceedings by Companies House. 

Registered Email Address

  • A registered email address must be provided on incorporation of a new company.
  • Existing companies will need to provide a registered email address when they file their next confirmation statement after 4 March 2024.
  • The registered email address will not be published on the public register.
  • Failure to maintain a registered email address will result in the company and any officer committing an offence.

It is important to choose an address that is actively and regularly monitored as Companies House will use this email address to communicate with the company.

Statement of Lawful Purpose

  • On incorporation the subscribers (shareholders) will need to confirm that they are forming the company for a lawful purpose. 
  • Existing companies will need to make a lawful purpose statement when they file their next confirmation statement after 4 March 2024.

Changes Effective from 1 May 2024

  • All filing fees are increasing with effect from 1 May 2024.  See here for details of the increased fees.

Other Important Changes to Come

Financial Penalties, from 2 May 2024

  • Companies House will have the power to impose a financial penalty directly (as an alternative to criminal prosecution) on the company or any officer if it is satisfied beyond reasonable doubt that a person has engaged in conduct amounting to an offence under the Companies Act 2006 (excluding offences under provisions contained in Part 12 (company secretaries), Part 13 (resolutions and meetings) and Part 16 (audit)).
  • The maximum financial penalty is £10,000.
  • Companies House will have the discretion to choose to impose a financial penalty or to pass to other bodies for criminal prosecution.

Mandatory Identity Verification

Mandatory identity verification will apply from the implementation date, which is yet to be confirmed, to:

  • All directors.
  • All persons with significant control (PSCs).
  • It extends to all officers (and PSCs) of overseas companies with an establishment (branch) in the UK.
  • There will be a transitional period for existing directors to comply. Those that do not comply by the end of the period may face criminal sanctions or civil penalties. The company’s public register will also be annotated to reflect their unverified status.
  • No new director can be appointed from the implementation date without complying with ID verification.
  • It will be impossible to incorporate a new company from the implementation date unless its first directors have been ID-verified.

There will be two ways to verify identity:

  • direct verification by Companies House using a digital service that links a person with a primary identity document (e.g. a passport or driving licence); and
  • indirect verification using an “authorised corporate service provider” (ACSPs) which includes company secretaries, formation agents and other third-party suppliers such as law and accounting firms who have registered as an ACSP.

Corporate Directors

Once these provisions come into force, a company may only have a corporate director if:

  • the corporate director itself only has individual directors whose identities have been separately verified; and
  • there is at least one natural director sitting alongside the corporate director (which mirrors existing law). 

Existing companies with corporate directors will have 12 months to comply from the implementation date. Only one layer of corporate directors will be allowed. Multiple corporate directors running up and down groups of companies will not be permitted.

Obligation to Provide a List of Shareholders

Companies will need to provide a one-off list of all shareholders (or those owning at least 5% of the issued share capital in the case of listed companies) from the implementation date. The information will need to be updated on each subsequent confirmation statement.

Restrictions on Who Can File Documents

Documents may only be filed at Companies House after the implementation date by:

  • A director, whose ID has been verified.
  • The company secretary, whose ID has been verified.
  • An employee, whose ID has been verified.
  • An ACSP.

Company Registers

From the implementation date there will be no requirement to maintain any of the following registers as the information will be filed directly with Companies House:

  • Register of directors.
  • Register of directors’ residential addresses.
  • Register of secretaries.
  • PSC registers.

Every company will need to maintain a register of members which will need to include the full name of each shareholder (and not just an initial and surname). The ability to have a company’s register of members held at Companies House will no longer be allowed.

Company Names

The Act introduces new restrictions on company names.  A company will not be able to adopt a name which could be used to facilitate certain crimes or contains a computer code. A company will require government consent to adopt a name that suggests a connection with a government outside the UK or an international organisation.

New Rules Relating to Accounts

  • Anyone filing small and micro accounts will have a range of additional compliance requirements.
  • It will no longer be possible to file abridged accounts.
  • All small companies and micro-entities will be required to file a profit and loss account and directors’ report.
  • All accounts must be file in an Inline Extensible Business Reporting Language (iXBRL) format.
  • If an audit exemption is claimed then accounts must state the particular exemption they qualify for.

How Can You Prepare?

  • Review existing registered office address now to ensure it meets the new criteria.
  • Identify suitable email address now to be used as the company’s registered email.
  • Prepare directors and PSCs for ID verification.
  • Consider who will conduct filings at Companies House and ask them to prepare to verify their identity in due course.
  • Consider appointing an ACSP in due course.
  • Ensure all director, secretary and PSC filings are up to date in advance of the abolition of these internal registers.
  • Review register of members to ensure full names (not abbreviations) of shareholders have been used.
  • If a company’s register of members is held at Companies House, start preparing a version to be maintained by the company itself.
  • Check whether any companies within a group structure have corporate directors appointed to the board.
  • Consider how best to prepare for iXBRL digital formatting and the balance sheet, profit and loss account and directors’ report requirements being introduced.
  • Consider what exemption evidence and eligibility statements will need to be provided (for dormant companies, small companies, micro-entities and PSCs particularly).

GBH Law will register with Companies House as an ACSP as soon as it is able to do so. Once approved by Companies House as an ACSP, GBH Law Limited will be able to deliver documents to Companies House on your behalf and complete mandatory identity verifications on behalf of a client.

These reforms will come into force in a phased way. We will track the government’s implementation timetable and Companies House guidance and keep you updated.

If you have any questions relating to these proposals or are not sure what steps you need to be taking now, please contact Clare Stephens or any other member of the Corporate Team for further guidance and assistance.