Companies House reforms: What is changing?

Announced during the Queen’s Speech in 2022, Companies House reforms will be introduced to change the way that Companies House operates.

These reforms are designed to enhance transparency and to make tracking and investigating financial crimes simpler. However, it is worth noting that their administrative implications will have the most impact on small businesses. Nicola Vernon, an associate solicitor in our Corporate team, discusses the reforms in more detail.

What are the new Companies House reforms?

A Factsheet published on the Government website states that the changes being brought in by the Economic Crime and Corporate Transparency Bill will “deliver a suite of wider-ranging reforms to tackle economic crime and improve transparency over corporate entities”.

The Companies House reforms include, amongst other changes, the following:

• the introduction of identity verification for all new and existing registered directors, People with Significant Control, and those delivering documents to the Registrar of Companies;
• the introduction of a new register of beneficial ownership which will seek to identify who ultimately owns and controls companies in the UK;
• the changing of the financial information that small companies are required to file with Companies House. This includes the removal of the option for small companies to prepare and file abridged accounts and introduction of the requirement to file a profit and loss account; and
• new penalties for non-compliance with the Companies House requirements.

Implications of the reforms

Historically, the changes that have been made to the Companies House filing requirements were intended to make the system more transparent, particularly in respect of being able to identify the ultimate ownership of a company.

However, the removal of the annual return and introduction of the Confirmation Statement, has, in many cases, in fact only succeeded in making the process less transparent, as the documents that are actually available to be viewed often contain little or no information if there have been no changes during the period. This means that in order to identify the shareholders of a company, in certain cases you may need to trawl back through numerous filings until you locate one that actually contains a list of shareholders. This does not feel like a more transparent system.

Regulatory requirements

The changes certainly appear to have the potential to improve transparency by increasing the information publicly available. However, it will also increase the regulatory burden on small companies and increase the costs associated with regulatory compliance.

It is therefore important that all UK businesses familiarise themselves with the proposed Companies House reforms and make adequate preparations to ensure that they can comply to avoid the new, more stringent penalties coming into force.

To help ease you into this new era, we have compiled some useful frequently asked questions on how the new Companies House reforms are likely to impact your business.

FAQs

1) Who is affected by the Companies House reforms?

It is small companies that will be affected by the reforms. Small companies are defined as those that meet at least two of the following criteria:

• Turnover of £10.2 million or less
• 50 or fewer employees
• Gross assets of £5.1 million or less

The criteria means that most companies will be considered to be small companies.

2) What will be the impact of the reforms for those affected?

This will partially depend on the size and structure of the company. However, some potential impacts include:

• Increased compliance costs, particularly for businesses with several directors and PSCs.
• Reduced flexibility in how companies can file their accounts.
• Greater transparency but less privacy, as more information about limited companies’ financial information will be easily available to the public.
• Larger risk of investigation by Companies House.

There will also be a requirement for all limited companies to file their profit and loss account at Companies House. Micro-entities will also need to file their profit and loss account but will remain exempt from needing to file a Director’s Report.

3) When will the reforms come into effect?

There is currently no timescale for when the Companies House reforms may be introduced. However, the first stage of legislation – the Economic Crime and Corporate Transparency Bill 2022 – is already going through the legislative process.

To find out more about how these changes may impact your business and how we can assist with the transition process, please contact Nicola Vernon.