New anti-fraud legislation will change how businesses deal with Companies House

New legislation will change how businesses deal with Companies House, including plans affecting small businesses.

The changes are aimed at clamping down on fraudsters in what has been deemed the ‘biggest shake-up’ to the government service in its 180-year history.

Criminals who use fake names to set up business and commit fraud, launder money and hide illegal trade will be targeted under the new anti-corruption laws after Companies House was granted ‘enhanced abilities’ to help investigators’ clamp down on tactics used by fraudsters and criminals.

Officials will be required to share information with law enforcement after the Economic Crime and Corporate Transparency Act received Royal Assent in October.

The raft of new powers include verification checks to assess the identities of people setting up companies and removal of bogus firms from the public register.

Companies House chief executive, Louise Smyth, said: “We have known for some time that UK companies have been misused by criminals to commit fraud, money laundering, and other forms of economic crime and our thoughts have always been with those affected.

“We will now play a much greater role in preventing further abuse of the register. We will be taking unprecedented steps to crack down on fraudulent activities, help victims quicker and clean up the register by removing information we know to be incorrect.

“This will underpin our efforts to improve the quality and reliability of our data, which will, in turn, hugely increase the value of the register for businesses across the UK and beyond.”

The Government believes the Act will stop criminals “hiding behind false names or registering companies with fictional characters” and prevent international criminals using the UK as a hub for financial crime.

Investigators will be given new powers to seize and recover cryptoassets, such as electronic currency Bitcoin, which aids criminals engaging in cybercrime.

The Government also want to close loopholes that allow corrupt businesses and corporate structures that are abused by companies to move and hide money.

The creation of the ‘failure to prevent fraud’ offence will mean prosecutors have the power to hold a large organisation liable if it benefits from fraud committed by a member of staff.

Government officials have called the new law a ‘game-changing’ move that will level the ‘playing field for all businesses and will help remove criminal money from the economy’.

The National Crime Agency (NCA) will also gain greater powers to compel businesses to hand over records related to terrorist financing and money laundering.

The powerful reforms are expected to come into force in early 2024 with some being introduced over a longer period.

Companies House has said ‘secondary legislation’ is being finalised that will bring changes to small business and micro-entities’ reporting rules.

Under the new measures, a profit and loss account and a director’s report must be filed, while abridged accounts will be prohibited.

According to a government factsheet, a small company is defined by having a turnover of £10.2m or less, a balance sheet showing £5.1m or less, or employing 50 staff or less.

Micro-entities have a turnover of £632,000 or less, a balance sheet showing £316,000 or less, and have a maximum of 10 employees.

Small business expert Lee Murphy, managing director of Birkenhead-based The Accountancy Partnership which works with around 13,000 clients in a range of sectors, said: “This will be a significant change to how small businesses operate.

“While most SMEs and entrepreneurs conduct business with integrity, there are criminal elements who seek to abuse the UK’s financial system.

“Accountants are often the first line of defence against fraud and money laundering and must do due diligence on clients and report suspicious activity.”

He added: “I hope the new legislation bolsters a robust process that improves how small businesses operate while driving better corporate behaviours and tackling economic crime.”

Business Minister, Kevin Hollinrake, said: “We’re providing Companies House with the tools to take a much harder line on criminals who take advantage of the UK’s open economy, ensuring the reputation of our businesses is not tarnished by the UK playing host to the world’s scammers.

“These reforms will remove the smoke and mirrors around companies hiding behind false identities, provide further protection to the public from companies fraudulently using their addresses, and deliver better data to support business and lending decisions across the economy, enhancing the UK’s reputation as a great and safe place to do business.”