The Economic Crime and Corporate Transparency Bill 2022 aims to bolster corporate transparency and combat economic crime. Maeve Hunt explains the two key takeaways for entities registered at Companies House and their directors

In the single biggest change to the role of the UK Register of Companies since it was created in 1844, the Economic Crime and Corporate Transparency Bill 2022 seeks to make a number of modifications to company law with the aim of enhancing corporate transparency and reducing economic crime.

To facilitate this, the Bill seeks to make further provisions about companies, limited partnerships and other kinds of corporate entities, and around the registration of overseas entities.

The legislation, on receiving Royal Assent, will affect all those who interact with Companies House, whether individuals (directors, secretaries and people with significant control of entities registered at Companies House) or entities, including companies, limited partnerships, limited liability partnerships and overseas businesses.

There will also be an impact on agents of such entities, such as those who provide company secretarial services.

At the time of writing, the Bill is in the reporting stage in the House of Lords, which gives all members of the Lords a further opportunity to examine and make amendments to the Bill. Once the Bill becomes legislation, there will be a period of transition to allow individuals and companies sufficient time to comply with the additional requirements.

There are two key considerations for entities registered at Companies House and their directors: identity verification and increased filing on the Register.  

Identity verification

To enhance the transparency of controllers and owners of businesses on the Register, Companies House will introduce mandatory ID verification for directors, company secretaries, people with significant control and others associated with those entities, such as their agents.

The ID verification process will use technology to verify the identity of the person in question by comparing their photograph with an official government ID, such as a UK-issued passport.

A director, company secretary or person with significant control will not be considered legally appointed until the ID verification process is completed, and they will be unable to act in that capacity or make filings at Companies House.

This will cover both UK-resident and non-UK-resident individuals. For newly appointed individuals, the process will need to be completed prior to appointment.

For existing roles, there will be a transition process to allow ID verification to be completed. If the verification is not completed within this timeframe, the individual will be removed from their role in that entity.

Separate provisions will cover those who do not hold UK-issued identification, such as overseas nationals, or those unable to use the web-based service.

For corporate directorships, similar provisions will also apply.

A UK company will only be able to be appointed as a corporate director when all its directors are natural persons, and those natural persons are subject to appropriate ID verification checks.

Non-UK companies will no longer be permitted to act as corporate directors.

These provisions also extend to directors of overseas companies registered at Companies House.

Improving financial information on the Register

Currently, 3.1 million sets of accounts are published on the Register each year, and access to these accounts is arguably the most valuable service that the Register provides.

Companies House will require all financial statements submitted to be in Inline Extensible Business Reporting Language (iXBRL) format. These tags are machine-readable, which will make the data easier to interrogate, compare and check, aiding Companies House in carrying out its new responsibilities for maintaining the integrity of the data it holds, identifying and addressing errors, and sharing data under certain strict conditions with other bodies such as law enforcement.

Companies House currently accepts accounts in iXBRL format, as well as in paper format and most companies will be required to include a set of accounts in a similar, but not identical, format when filing their corporation tax returns with HMRC.

There are currently reduced filing options for some companies where they meet the ‘small’ or ‘micro’ criteria set out in the Companies Act 2006. Such entities currently have an exemption from filing their Profit & Loss Account, and, for small companies, a Directors’ Report. A micro company is exempt from having to prepare a Directors’ Report.

These reduced filing options will be removed, meaning small and micro companies will file their full financial statements, including a Profit & Loss Account and Directors’ Report (where applicable), which will be publicly available.

Maeve Hunt is a Director of Audit and Assurance at Grant Thornton NI