[co-author: Katy O’Connor]

Companies House has been granted new powers to crack down on fraud, but whether it has the resources to take advantage of these and properly clean up the register of companies is questionable.

A suite of new powers

Companies House is a UK government agency that is responsible for incorporating all companies in the UK and for maintaining the register of companies. It also accepts and stores company filings and provides an online searchable database of company information.

On 4 March 2023, Companies House’s powers were expanded significantly when a number of measures introduced by the Economic Crime and Corporate Transparency Act 2023 came into force. The new powers are intended to improve the accuracy of data held by Companies House and to prevent companies in the UK being used to carry out unlawful activities.

For the first time, Companies House has been given enhanced information gathering powers and the ability to reject documents before they are filed on the register. These new powers can be lauded as another tool in the government’s arsenal for fighting fraud and corruption. However, they will only be effective if Companies House is provided with the resources needed to properly take advantage of them. Companies House has historically operated as a depositary of information, but the recent enhancements to its powers have moved it closer to taking on the role of a fraud detection and prevention agency. It will need significantly more funding and staffing if it is going to make the most of this role.

Companies House is working to improve its capacity: it says that it has recruited more than 160 extra staff to take on new duties resulting from this legislation and plans to hire around 60 more.¹ These new staff are in addition to its approximately 1,000 existing full-time employees.² Companies House will also increase its fees for companies in May 2024, and its financing structure means that these fees will be reinvested to cover the costs of its services. But legitimate concerns remain regarding whether this will be enough to allow Companies House to properly use its new powers; it has already caveated the announcement, stating that some measures, including identity verification will be introduced over an unspecified “longer period”.³

There are two key parts to Companies House’s new powers:

First, there is the collection of more information from companies joining the register, and enhanced scrutiny of information provided. It may be relatively straightforward to ask companies additional questions during the registration process, but significantly more resource will be needed to properly scrutinise information provided by companies, and to request additional information and manage outstanding requests.

Second, Companies House has powers to ensure that information already provided on the register is complete and accurate. But undertaking any kind of comprehensive review of entries on the register will be an enormous task. There are more than 5 million registered companies in the UK, and until now there has not been systematic examination of the information submitted by these companies. With that in mind, it is reasonable to assume that there is a very large volume of inaccurate and incomplete information currently on the register.

There have long been reports of fake names and addresses being used to register companies, as well as incorrect information being submitted to the register. While many inaccuracies on the register might be the result of oversight rather than fraud, Companies House will still have its work cut out to identify and resolve issues.

The reforms were met with enthusiasm by Companies House; CEO Louise Smyth said that the “new and enhanced powers are the most significant change for Companies House in our 180-year history.” ⁴

The reforms

Key new measures that were introduced include:

• Enhanced information gathering powers for Companies House, including a new power to require companies to produce additional documentation when requested. Failure to provide requested information without a reasonable excuse will be a criminal offence for a company and its directors.⁵ Companies House is now also entitled to reject documents submitted to the register on the basis that they contain information inconsistent with other information held on the register.⁶
• Companies face tighter restrictions around what they can use as their registered address, and specifically may not use PO boxes.⁷ Companies must also provide an email address when registering.⁸
• Names used by companies will be subject to greater scrutiny, with new prohibitions on names connected to a criminal purpose; suggesting a connection to foreign governments; or containing computer codes.⁹ Companies House indicated that as they begin their crackdown on the misuse of the register, cases where people’s names and addresses have been used without their consent will be treated as a priority.¹⁰
• Companies will be required to affirm that they are formed for a lawful purpose.¹¹ While this provision is unlikely in itself to prevent companies engaging in criminal activity, it gives an extra hook for prosecution.

¹ The Law Society Gazette, “Companies required to make ‘lawful purpose’ declarations”, 4 March 2024, available here.

² Companies House annual report and accounts 2022 to 2023, available here.

³ Companies House press release dated 4 March 2024, available here.

⁴ Companies House press release dated 4 March 2024, available here.

⁵ Economic Crime and Corporate Transparency Act (ECCTA) 2023, section 83.

⁶ ECCTA, section 79.

⁷ ECCTA, section 28, and Companies House press release dated 4 March 2024, available here.

⁸ ECCTA, section 29.

⁹ ECCTA, sections 8-10

¹⁰ Companies House press release dated 4 March 2024, available here.