The UK recently introduced significant changes to corporate transparency and anti-money laundering (AML) laws, notably through the Economic Crime and Corporate Transparency Act 2023 (the “ECCTA 2023”). These updates affect businesses, including Small and Medium-sized Enterprises (SMEs), in several key areas:
1. Identity Verification:
All company directors, Persons with Significant Control (PSCs), and individuals submitting documents to Companies House must verify their identity. Verification can be conducted directly through Companies House or via an Authorised Corporate Service Provider (ACSP), such as registered accountants or lawyers. This measure aims to curb fraudulent activity by ensuring all key individuals are traceable.
2. Enhanced Powers for Companies House:
Companies House has gained new powers to scrutinize, query, and reject information that appears suspicious, including filings and director appointments. This includes the authority to remove inaccurate data from the register and impose fines for non-compliance.
3. Changes to Filing Obligations:
SMEs that qualify as micro entities and small companies for the purposes of the Companies Act 2006 must submit more detailed accounts, including balance sheets and profit and loss statements. Small companies also no longer have the option to file abridged accounts.
4. Registered Address and Email Requirements:
Companies must ensure their registered office address is an “appropriate address” meaning that it is valid for receiving correspondence and is an address at which the delivery of documents is capable of being recorded by the obtaining of an acknowledgement of delivery (meaning that PO boxes may no longer be sufficient). They must also provide a registered email address to facilitate communication with Companies House, although this will not be publicly visible.
5. Failure to Prevent Fraud Offense:
From 1 September 2025, organisations (including both incorporated bodies and partnerships) formed in the UK (or formed outside the UK but with a UK nexus) could be held liable for failing to prevent fraud committed by employees if proper safeguards are not in place. This introduces a new layer of responsibility for such organisations to monitor and mitigate fraudulent activity internally. However, this offence would only apply to organisations meeting two or more of the following criteria (“Large Organisations”):
- more than 250 employees
- more than £36 million turnover
- more than £18 million in total assets
6. Improved Transparency for Overseas Entities:
The Act expands requirements for foreign entities owning UK property to disclose their beneficial owners, further addressing concerns over money laundering via real estate.
7. Transition to Digital Filing:
Most submissions to Companies House will now need to be filed electronically, streamlining compliance while increasing the ability of Companies House to monitor filings for inconsistencies.
The ECCTA 2023 received Royal Assent in October 2023 and key provisions, such as the enhanced identity verification requirements, Companies House powers, and new filing obligations, came into effect in March 2024. Other aspects, including the failure to prevent fraud offense and expanded financial reporting requirements, will be rolled out incrementally over the coming months. Consequently, to prepare for the changes introduced by the ECCTA 2023, UK SMEs should take the following steps:
1. Ensure Identity Verification Compliance
- Directors and PSCs (Persons with Significant Control): Verify their identities through Companies House or via an Authorised Corporate Service Provider (ACSP).
- Document Filers: Verify identities of anyone authorized to submit filings on behalf of the company. SMEs should establish internal controls to ensure only verified individuals can file documents.
2. Review and Update Corporate Records
- Registered Office Address: Ensure the company’s registered office is an “appropriate address,” meaning it can receive and respond to official communications (no PO boxes).
- Email Address: Establish a dedicated, monitored email address for Companies House communication. Ensure that this email address is independent of specific employees to maintain continuity.
3. Prepare for Enhanced Financial Transparency
- SMEs must adjust their processes to meet the stricter financial reporting requirements:
- File detailed balance sheets and profit and loss accounts if classified as a small company.
- Understand that micro-entities must meet additional obligations to file accurate reports.
4. Strengthen Anti-Fraud Measures
- Although the failure to prevent fraud offence introduced by the ECCTA 2023 primarily applies to Large Organisations (as defined above), SMEs should look to implement reasonable procedures to prevent fraud as they grow as the new failure to prevent fraud offense holds companies liable if employees engage in fraudulent activities.
- Review and enhance employee training and fraud monitoring systems.
5. Adjust for New Companies House Powers
- Ensure all filings are accurate and consistent with the company’s register.
- Be prepared for queries or rejections of suspicious filings by Companies House, which now has expanded powers to scrutinize records.
6. Understand the Role of ACSPs
SMEs may need to work with ACSPs (e.g., accountants or legal advisors) for identity verification or filing support. Confirm your service providers are registered and compliant with AML requirements.
7. Stay Informed About Implementation Dates
Provisions like identity verification and filing requirements came into effect in March 2024, while other measures will be rolled out over the coming months. SMEs should monitor updates from Companies House and legal advisors for specific deadlines.
Immediate Actions
- Audit current records for compliance.
- Set up an appropriate address and email.
- Begin onboarding employees and directors into identity verification processes.
- Consult with accountants, lawyers, or company formation agents to ensure readiness.
By taking proactive steps now, SMEs can minimize disruptions and ensure compliance with the evolving regulatory landscape.
We would love to hear from you. If you wish to get in touch, feel free to Schedule a free consultation with us.
