Companies House given powers to tackle fraud

Companies House has begun a phased rollout of new powers to improve the quality and reliability of its data and clamp down on abuse of the companies’ register

The register is used 14 billion times a year and the new rules are designed to ‘improve the quality and reliability of the register. Cleaning up the register will not happen overnight but it will enable us to improve transparency,’ Companies House said. ‘We will use data matching to check the company details and we will do more and more as time passes.’

Most of the changes require significant IT investment and will take place over several years with a need to hire more specialist investigators. Companies House has already heavily invested in data science capabilities so they can be ‘ahead of the curve in terms of our future capabilities.

We recognise that technology is changing all the time and we have to keep pace with that’.

The organisation has grown quite dramatically in the last year with the recruitment of over 160 people, and plans to take on another 60 over the next few months to deal with the rollout of identity verification using the new One Login, which is replacing Government Gateway accounts.

Down the track, Companies House will introduce compulsory identity verification in 2025, as well as streamlining accounts filing requirements for small companies to require all companies to provide profit and loss accounts, a director’s report where accounts are not audited, and no more abridged accounts from 2026.

A timetable for these changes has not been announced but they are expected to come in over the next two to three years. The measures will require secondary legislation through a number of statutory instruments.

‘This large and complex set of changes will be introduced in phases over the coming years,’ Companies House said.

The first measures under the Economic Crime and Corporate Transparency Act 2023 (ECCT Act) came into force on 4 March.

Companies House currently has quite limited powers to question information – under the new rules, it will be able to take a much more robust approach, and will be able to query information already on the register. This will see officials at the registry challenging any inconsistences from new and existing entries on the register, for example, if a company has unusually high share capital, or directors registered at other addresses, then this will be investigated.

The most significant changes include greater powers to query information and request supporting evidence, more robust checks on company names and the ability to remove factually inaccurate information.

In future, companies will not be able to use a PO Box as their registered office address and must have an appropriate address at all times.

Companies House has written to a few thousand companies telling them to change their addresses as they are currently using PO Box numbers.

All companies will also have to supply a registered email address although this will not be published.

There will also be a requirement for subscribers to confirm they are forming a company for a lawful purpose when they incorporate, and for a company to confirm its intended future activities will be lawful on its confirmation statement.

In terms of powers to target criminal abuse of the register, Companies House will also be able to share information more proactively with other government departments, including HMRC, and law enforcement agencies.

Some of the fees for sharing the information with law enforcement have been removed and Companies House is already sharing trust data from the register of overseas entities with other departments, which is proving to be a ‘really rich resource of data especially for HMRC’.

This means that Companies House will be able to ‘share data to help disrupt economic crime. We will be much more proactive and will help UK’s drive to tackle economic crime. We have received funding to increase capabilities in this area and have hired more investigators’.

The new powers to investigate entries are similar to powers for monitoring the Register of Overseas Entities.

There will also be new criminal offences and civil penalties for failure to comply with the rules. A penalty of up to £10,000 could be imposed directly as an alternative to a criminal prosecution. The regulations are likely to come into force on 2 May 2024. 

Companies House CEO Louise Smyth said: ‘These new and enhanced powers are the most significant change for Companies House in our 180-year history.

‘We’ve known for some time that criminals have misused UK companies to commit fraud, money laundering and other forms of economic crime.

‘As we start to crack down on abuse of the register, we are prioritising cases where people’s names and addresses have been used without their consent. It will now be much quicker and easier to report and remove personal information that has been misused. This will make a real difference to individuals.’

From 1 May 2024, Companies House will also increase fees to take new future expenditure into account, as well as making sure costs are recovered from existing expenditure.

This is the first phase of measures to improve corporate transparency, with further legislation required to enforce new reporting rules for smaller businesses with the introduction of mandatory profit and loss accounts, and end of abridged accounts, , and the new failure to prevent fraud offence.  

Vincent Billings, partner in the corporate and commercial team at SA Law, said: ‘The aim is to create better transparency and remove the presence of so-called ‘Mickey Mouse’ companies. But this is a source of anxiety for many company directors, who are worried about being caught in a position where they have failed to comply with the new laws.

‘There are other major changes to be expected later down the line – including a new ‘failure to prevent fraud’ offence, which means directors could be held liable for failing to prevent fraud committed by a member of staff, or a business or individual they’re associated with.

‘With consequences including financial penalties and potentially even prison sentences, it is vital directors are up to speed with the changes and seek appropriate advice if they’re unsure about anything.’

The new rules are meant to crack down on kleptocrats, criminals and terrorists who abuse the current open economy. 

Business minister Kevin Hollinrake said: ‘Companies House now has the tools to take a much harder line on criminals who take advantage of the UK’s open economy and can now ensure the reputation of our businesses is not tarnished by the UK playing host to the world’s scammers.

‘The new reforms provide further protection to the public from companies fraudulently using their address and will begin to remove the smoke and mirrors around companies hiding behind false information.’