In addition to measures aimed at addressing economic crime, the new Economic Crime and Corporate Transparency Act has changed the requirements for the preparation and filing of accounts, seeking to enhance information held on the UK companies register.
It has been in the works for a long time
After a lengthy parliamentary process, the Economic Crime and Corporate Transparency Act (ECCTA or the Act) received Royal Assent on 26 October 2023. The Act grants Companies House additional powers to combat economic crime and aims to enhance the transparency and accuracy of information on the UK’s company register to support economic growth. In this article, we elucidate the alterations to accounts and filing requirements, and outline some of the other measures that will be introduced over the next few years.
Despite having become law, many of the measures within the Act will require secondary legislation (in the form of Regulations) to become effective. This is expected to commence from early 2024, although initial measures are likely to include some of the changes outside of accounts reform outlined here.
Changes to accounts The adjustments to the preparation and filing of accounts are devised to enhance the quality and value of financial information on the register. Additionally, they aim to make Companies House better equipped to serve the needs of a 21st-century economy and prevent abuse of the corporate framework.
Streamlining filing obligations Small companies will no longer have the option to prepare and file abridged accounts; instead, they will be obligated to file both their profit and loss account and directors’ report. Micro-entities will also be required to file their profit and loss account, but will retain the option not to prepare or file a directors’ report.
Provision that profit and loss accounts may not be publicly available In a significant departure from the original Bill, the Act includes a regulatory power that, while small and micro companies will be required to file their profit and loss account, it (or parts of it) may not necessarily be made available for public inspection. How, or in what circumstances, the provision might be applied in practice is still being considered.
Audit exemption statement
When claiming exemption from audit, directors are presently required to include a statement to that effect on the balance sheet. The Act extends this requirement, additionally necessitating the statement to identify the exemption being taken and include confirmation that the company is eligible to take the exemption.
Electronic Delivery of Accounts
Under the Act, authority to compel documents to be delivered by electronic means has been transferred to the Registrar, and such requirements must be introduced through the Registrar’s rules, paving the way for electronic filing to be introduced more expeditiously. The transition to software-only filing is expected to be phased in over the next two to three years.
Company law changes beyond accounts The Act introduces numerous other changes, empowering Companies House to play a more significant role in addressing economic crime, alongside measures to enhance the transparency and accuracy of information on the register.
These measures encompass: introducing identity verification checks for all new and existing registered company directors; providing greater powers to query information and conduct more robust checks on company names; and enhancing investigation and enforcement powers. These are likely to be among the first measures to be implemented.
Failure to prevent fraud
Finally, but not insignificantly, the Act establishes a new Failure to Prevent Fraud offence, aimed at holding companies accountable if they benefit from fraud committed by their employees. Under the new offence, large companies will be liable where a specified fraud offence is committed by an employee or agent and it did not have reasonable fraud prevention procedures in place. More information regarding this aspect of the Act and related resources can be found here.
The Corporate Reporting Faculty will be monitoring developments closely and will keep faculty members informed through its monthly bulletin and other channels. Visit the government’s Changes to UK company law hub highlighting the changes introduced by the Act.
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