Introduction to the Act
The Economic Crime and Corporate Transparency Act (ECCTA or ‘the Act’) received Royal Assent, and so became law, in October 2023. Together with the Economic Crime (Transparency and Enforcement) Act, which passed into law in March 2022, the two Acts bring in stronger powers to tackle money laundering and other illicit activity. This second Act also aims to support the economy by providing more, and better quality, information to inform business transactions and lending decisions.
The ECCTA has been making its way through Parliament since September 2022, when it was introduced in the form of the Economic Crime and Corporate Transparency Bill (the Bill). Preceding the Bill, was the UK Government’s February 2022 Corporate Transparency and Register Reform White Paper, which contained the government’s response to consultations on the powers of the Registrar, implementing the ban on corporate directors, and improving the quality of financial information on the UK companies register. The Act brings in many, although not all, of the reforms originally set out in the White Paper.
The Act delivers:
- reforms to Companies House that will improve the quality of information on the company register, including changes to the preparation and filing of accounts and the introduction of identity verification for company directors and others;
- reforms to prevent the abuse of limited partnerships;
- additional powers to seize and recover crypto assets which are the proceeds of crime or associated with illicit activity;
- the creation of a ‘failure to prevent fraud’ criminal offence; and
- reforms to give businesses more confidence to share information in order to tackle money laundering and other economic crime.
This page considers the reforms to Companies House that impact the preparation and filing of financial information. Further information on other aspects of the Act can be found on ICAEW’s Economic Crime hub and in this article.
Preparing and filing accounts
The reforms to the preparation and filing of accounts are designed to improve the quality and value of financial information on the UK companies register. The aim is to make Companies House fit for the future and better able to serve the needs of a 21st century economy, as well as to prevent abuse of the framework and instances of economic crime.
The key measures impacting the preparing and filing of accounts are set out below.
Simplifying filing obligations
The Act simplifies and streamlines the filing options for small companies, which will no longer have the option to prepare and file abridged accounts. Small companies will be required to file both their profit and loss account and directors’ report, thereby also removing the option of filing so-called ‘filleted’ accounts.
Micro-entities will similarly be required to file their profit and loss account but will continue to have the option not to prepare or file a directors’ report.
Disclosure of profit and loss accounts for certain companies
While the Act requires small companies and micro-entities to file their profit and loss accounts, it includes a regulatory power that enables these profit and loss accounts, or parts of them, to not be made available for public inspection. Exercise of this power will be subject to Regulations being passed by Parliament.
Not included in the original Bill, these provisions were amendments that were made as the Bill passed through the parliamentary process. The provisions seek to balance legitimate concerns raised regarding the commercial sensitivity and privacy of financial information with the need for Companies House to receive the information it requires to verify that companies are entitled to file accounts under the regime which they are doing so.
How, or in what circumstances, the provision might be applied in practice is still being considered.
Audit exemption statement
Under s475 of the Companies Act 2006 (CA 2006), a company’s annual accounts must be audited unless it is exempt under certain situations. To be entitled to these exemptions, a statement by the directors to that effect must be included on the balance sheet. The Act requires this statement to, additionally, identify the exemption being taken and include confirmation that the company qualifies to take it.
This statement applies to all companies claiming exemption from audit, including dormant companies.
Integrity of information
The Act removes Companies House’s existing, but limited, powers to correct documents that contain inconsistencies or appear incomplete but will instead grant it broader powers to verify the integrity of documents submitted. Any documents that are not consistent with information held by or available to the Registrar will be rejected if they cause the Registrar to doubt whether all requirements relating to its contents have been complied with. A document that is rejected would be treated as having not been delivered.
Facilitating electronic delivery
The CA 2006 already provided for the Registrar to specify the manner in which documents are delivered to Companies House (eg, hard copy or electronically). However, the power to require electronic delivery laid with the Government and required secondary legislation. To facilitate electronic delivery in the future, this authority has been transferred to the Registrar by amending s1068, CA 2006 and which now specifies that such requirements must by imposed by the means of registrar’s rules.
While the Act does not contain a requirement for companies to submit digitally tagged accounts in iXBRL format as proposed in the White Paper, these new powers pave the way for this to be introduced in the future.
The Act also permits the Registrar to use registrar’s rules to require filings consisting of more than one document to be filed together.
Anticipated further changes
Section 468 of the CA 2006 gives the Government a general power to make further provisions about accounts through secondary legislation (such as Statutory Instruments). Measures not contained within the Act that are likely to be introduced via secondary legislation include:
- format details of the profit and loss account required to be filed by small and micro companies; and
- changes to limit the number of times a company can shorten its accounting reference period.
An overarching ambition of the Government, outlined in the original consultations, is to achieve a ‘file once with government’ approach, whereby 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. Although there are no firm plans in this regard at this time, the White Paper said that options to enable this to happen will be explored.
Effective date and next steps
While the Act has been passed into law, many of the measures will be implemented through secondary legislation. Implementation will therefore involve a significant programme of work, phased-in over several years. It is anticipated that secondary legislation will start arriving from early 2024. Early measures, however, are likely to focus on changes outside of the reforms to accounts and filing requirements outlined above. Instead, giving Companies House greater powers to query information and more effective investigation and enforcement powers may be among some of the first measures to be implemented.
ICAEW will continue to monitor the situation closely and make members aware of further developments as information becomes available.
