Transforming the company register

With more than 10 billion visits a year, the UK’s company register is a highly valuable source of information. The quality and accuracy of the data that it holds – particularly financial information – is vital to inspiring trust and confidence in the UK as a place to do business. The register plays a key role in facilitating economic activity by informing many business and lending decisions. Loopholes and limitations in current legislation, however, have led to abuse of the system and it has become clear that reform is required.

In May 2019, the government’s Department for Business, Energy and Industrial Strategy (BEIS) launched its first consultation on corporate transparency and register reform, which looked at options to enhance the role of Companies House and increase the transparency of UK corporate entities. Three further consultations followed in December 2020, which looked at improving the quality and value of financial information on the register, the powers of the Registrar, and implementing the ban on corporate directors. 

In February 2022, the UK government issued a White Paper setting out its final position on the reforms ahead of introducing legislation. This article summarises the intended measures for improving financial information, but starts by highlighting some of the context around the changes. 

Passive recipient to active gatekeeper

Since its creation, the role of the Registrar has largely been that of a ‘passive recipient’ of information. This has enabled growing instances of fraud, money laundering, identity theft and other forms of economic crime to take place. A fundamental shift in the role of Companies House to ‘active gatekeeper’ is envisioned. This will see increased up-front validation of accounts, with new querying powers being granted to the Registrar that will enable more investigations to be carried out when cases are bought to its attention.

Adapting to a digital economy

With approximately 650,000 companies being incorporated each year, the volume of data that Companies House processes is increasing rapidly. There are also ever-increasing user demands, with the annual number of searches going from 1.3 billion to 10.2 billion since the free, online register was launched in 2015. Against this backdrop, it is clear that Companies House needs to transform its digital capabilities to meet the demands of a 21st-century economy. Making information digital also enables more checking and validation – essential to combating economic crime.

Towards ‘file once’

An overarching ambition is to achieve a ‘file once with government’ approach. Companies would file their financial information centrally, just once a year, with relevant information being automatically filtered out to the various parts of government as required. This would not only reduce the burden for companies, but would also help improve the efficiency and effectiveness of government. Moving in a digital direction will be a key enabler in achieving this ambition. While the White Paper says options to enable this to happen will be explored, there are no firm plans in this regard at this time. 
So what changes are planned?

How and when information will be filed

Mandatory digital filing
Company accounts will be required to be filed in a digital format using iXBRL. Full tagging of accounts will also be required and will be aligned to HMRC’s tagging requirements. This will help with validation checks prior to filings being accepted onto the register and facilitate bulk searching of data by users. 

The White Paper commits to ensuring a low-cost or free filing option is available for the smallest companies. Exemptions for some companies will be considered and there will be a transitional period prior to this change being enforced.

Deadlines stay as they are, for now
One area consulted on was shortening filing deadlines to improve the timeliness of information on the register. While some strongly supported this proposal, ICAEW and others in the accountancy profession raised concerns about the practical implications of the proposed changes and the potentially detrimental impact on the quality of information being filed. The White Paper recognises the challenges that come with shortening filing deadlines and no immediate changes will be made at this time. However, legislation will be introduced to facilitate future changes. 

What information will be filed?

Options for small and micro-entities
Also consulted on was a review of the filing regimes for small companies. Broad support exists for reforming the filing options available to small companies, with abridged and micro-entity accounts being the subject of particular criticism. As a result:

• Small companies will no longer have the option to prepare and file abridged accounts and will be required to file both their profit and loss account and directors’ report; ie, the option to file ‘filleted’ accounts will be removed.
• Micro-entities will also be required to file their profit and loss account, but will continue to have the option to not prepare or file a directors’ report.

Although company law has always regarded transparency as being the price of limited liability, some – including ICAEW – feel requiring a profit and loss account to be filed is prejudicial to the interests of the company and its members. On the other hand, credit reference agencies fully support more information being disclosed to help determine creditworthiness. The additional information will also enable Companies House to check that companies meet the thresholds of the regime under which they have filed. While many of the companies that file under the wrong regime do so due to misinterpreting or not fully understanding the complexities of the thresholds and eligibility criteria, it is also an area that has been used by criminals to deliberately hide information.

Single set of accounts
A comparison project between Companies House and HMRC revealed that, contrary to the intention of the Companies Act, some companies prepare and deliver different sets of accounts to different parts of government. This sometimes indicates fraud. Consequently, the Companies Act will be amended to clarify the requirement for a company to prepare and deliver one set of accounts for each accounting period. 

Dormant companies
Directors of dormant companies will be required to complete an eligibility statement confirming that the company meets the criteria for filing dormant accounts. As outlined above, the changes to the filing requirements for small companies will enable their regime eligibility to be checked. This should act as a deterrent against criminal activity by providing evidence to support enforcement action. 

Accounting reference period
Changes will be introduced limiting the number of times a company can shorten its accounting reference period, to align with the existing restrictions around a company extending its accounting reference period. In most cases, this will mean that companies will only be able to shorten their accounting reference period once every five years.

What happens now?

The next step is legislation. With recent events in Ukraine resulting in legislation that helps to fight economic crime being fast tracked through parliament, this may appear sooner than previously anticipated. At the time of writing, a second Economic Crime Bill is expected in the early summer. The Financial Reporting Faculty will be monitoring developments closely and further information will be published at icaew.com/frnews when available.

In the meantime, investment in transforming all aspects of Companies House’s operations is already happening, with the UK government investing £20m in 2020/21 and committing to spending a further £63m between now and the end of the 2024/25 fiscal year. 

Even though the timing of these changes may be uncertain, one thing is clear: these changes, along with the others contained in the White Paper, represent a radical overhaul in the role of the Registrar. Whether they achieve the ambition of the UK companies register being ‘the most innovative, open and trusted registry in the world’ remains to be seen.