What do small business owners need to know about the Economic and Corporate Transparency Act?

The Economic Crime and Corporate Transparency Act 2023 (the “Act”), which received royal assent on 26 October 2023, can be described as one of the biggest reforms to UK company law. This is since the Companies Act 2006 was introduced.

With the first set of measures coming into effect on 4 March 2024, the Act aims to tackle economic and financial crime. It does this by allowing law enforcement agencies to exercise further enforcement powers. It also improves transparency over UK entities and delivers more accurate and reliable registers. Whilst the Act will implement a number of changes, we will focus on the administrative and regulatory requirements small businesses need to be aware of. 

Expansion of Registrar’s Powers

One of the most important changes to be made under the Economic Crime and Corporate Transparency Act is the expansion of the Registrar’s enforcement powers. Although the Registrar currently has certain administrative powers relating to the company register, it only has limited powers to ensure the integrity and accuracy of the information held on the register.

The Act will therefore allow the Registrar to play an active role in exercising their enforcement powers. They will ensure that the information on the register is correct and reliable. The key powers available to the Registrar include, but are not limited to: 

The key powers available to the Registrar include, but are not limited to: 

  • Rejecting and querying new filings that are inconsistent with information already held by Companies House. 
  • Requesting additional information relating to a filing to determine whether it has been delivered properly or whether it is a document that must be registered. 
  • Giving notice to require any inconsistencies to be rectified if the Registrar finds that the information delivered appears to be inconsistent with other information on the register. 
  • Imposing a requirement on businesses to obtain information about a customer (existing and prospective). This is in order to identify discrepancies between the information obtained and that on the register and to report any discrepancies to the Registrar. 
  • Imposing financial penalties for breaches of the Companies Act 2006.  
  • Striking a company’s name off the register if it has reasonable cause to believe that any information contained in, or statement connected to, its application for registration or restoration is false. 
  • Changing a registered office address if it considers that the company is not authorised to use the address. 
  • Substituting a director’s service address on the register with that director’s residential address.

To avoid any risks and penalties, it is crucial for small businesses to have proper paperwork in place. In addition, you will have to respond to the Registrar’s requests promptly where appropriate and notify any changes made to your organisation’s register. Failure to do so would lead to serious consequences. If you notice any inconsistent details or files missing from the register, we suggest that you resolve them as soon as possible. 

Identity Verification

Identity verification will be introduced under the Economic Crime and Corporate Transparency Act. This aims to prevent those wishing to set up a company for illegal purposes. 

All directors and people with significant control (PSCs) are now required to verify their identity at Companies House. This requirement applies to new and existing directors of UK companies. It also applies to individuals of other corporate entities, such as members of a limited liability partnership (LLP). It is worth noting that this requirement will not apply to company secretaries. 

Directors and individual PSCs of an existing company will have 14 days from the date of the change to verify their identity. In contrast, corporate PSCs will have 28 days to provide the name of the individual within the corporation who has had their identity verified. 

Most importantly, an individual cannot act as a director unless their identity has been verified. Thus, the individual must not purport to act on behalf of the company. Furthermore, they must file their appointment within 14 days of the appointment. Until this is done, it will be an offense for a new director to act if their appointment is not filed at Companies House. We suggest that you check the filing has been made before you act as a director. 

Registered Office and Email Address

The Economic Crime and Corporate Transparency Act introduces a requirement for companies to keep an ‘appropriate’ registered office address and email address with Companies House. A company’s registered address or email address is considered ‘appropriate’ if posts or emails sent by the Registrar would come to the attention of someone acting on behalf of the company.

Failure to provide an appropriate registered office and email address without reasonable excuse would mean that the company will be committing an offense. Consequently, the company and every officer of the company will be liable. 

Company Registers

Although companies are no longer required to hold their PSC register, register of directors, register of directors and secretaries’ residential addresses, the information will still need to be filed at Companies House. The only register that companies must legally have in place is the register of members, which comprises their name and service address. Under the Act, there is no longer an option to keep information about the members on the central register. Therefore, it is important to make sure that the register is available for inspection. 

Accounts

All accounts will need to be submitted electronically to Companies House in phases over the next two to three years. Small companies will need to file audited annual accounts unless they benefit from an audit exemption. If it is exempt from auditing, this will need to be clearly stated on the balance sheet. Additionally, an explanation for the exemption has to be included. 

Although the Government has yet to set out a full implementation timetable, small businesses may wish to prepare for these changes. Some of the key issues will require thorough preparation, especially verifying identity at Companies House. If you are unclear of the changes, our team at Farringford Legal are more than happy to help.