Companies House: Filing of Annual Accounts by Small Companies

Question

Asked by

To ask His Majesty’s Government what plans they have for implementing, modifying, or repealing any part of the Economic Crime and Corporate Transparency Act 2023 dealing with the filing of the annual accounts by small companies at Companies House.

My Lords, this Government are committed to implementing the Economic Crime and Corporate Transparency Act 2023. The reforms in the Act aim to improve the accuracy of Companies House data, strengthening the UK’s reputation as a place where legitimate businesses can thrive while driving out dirty money. These changes aim to improve transparency and combat economic crime. The Government are engaging with stakeholders and Companies House to ensure effective implementation while minimising burdens on small businesses.

My Lords, the secrecy afforded to small companies has incubated financial crime. Just last month, HMRC said that 40% of corporation tax due from small businesses is not being paid. Numerous money laundering, sanctions-busting and employment scams are fronted by small companies; therefore, we need far more information publicly filed by small companies at Companies House. So, further to his reply just now, can the Minister say that the Government will fully implement all the public filing requirements which apply to small companies under the Economic Crime and Corporate Transparency Act 2023?

My Lords, the reforms under the Economic Crime and Corporate Transparency Act 2023 represent the largest changes to the UK’s financial framework for registering companies in over 180 years. With the help of new powers, Companies House has already prevented some 14,600 suspicious filings and queried and removed false, misleading or incorrect information impacting some 106,000 companies. Furthermore, since the introduction of new data-sharing powers in March 2024, Companies House has shared approximately 800 intelligence reports with partners, who can use this to complement their own intelligence picture or take immediate action to disrupt illicit activities. We recognise recent concerns and will set up next steps to address specific concerns raised.

My Lords, we as a country are heavily legislated for small companies. We see a large number of UK companies leaving the London Stock Exchange for New York, and a large number of people leaving the country for good. We do not celebrate wealth creation any more. To further burden small companies that create wealth and jobs for our country will be a bit too much. Can we look at watering down some legislation and encouraging small companies to grow?

I thank the noble Lord for that. I hope that he has read our industrial strategy. We aim to reduce something like 25% of regulation on businesses. Currently, as it stands, as the noble Lord will know, most companies have to file abbreviated accounts with Companies House. So what we are asking is nothing more than what they are already doing, so we are not adding additional burdens on small businesses.

My Lords, thanks to the efforts of this House, the Economic Crime and Corporate Transparency Act introduced a new power for the Government to regulate in order to find out about people holding shares as nominees for other people, which is one of the easiest and most common ways by which beneficial ownership of companies can be hidden. A whole industry has built up to facilitate this. What assessments have the Government made of the misuse of nominee shareholders, and what plans do they have to use those regulations?

The noble Lord makes a very interesting point. Let me just give your Lordships an insight into what Companies House has done since the Act came into force. We have been cleaning up the Companies House database, and we have a five-year timeframe to really clean it up. The first thing we will do is to verify those individual directors. There are something like 7 million directors at Companies House and, currently, some 250,000 directors have voluntarily verified themselves. Towards the autumn of this year, through the GOV.UK One Login, we hope to have close to all the 7 million verify who they are, so that we can get to the bottom of whether who they say they are is exactly who they are.

My Lords, the registration is wholly inadequate. Independent research suggests that numerous UK-registered companies have no UK resident director. Such companies are 17 times more likely to commit fraud, as the Government are in no position to impose UK law on directors living abroad. How will the Minister curb the frauds of such companies?

The noble Viscount is absolutely right. We obviously do not have jurisdiction on foreign companies or companies registered outside the UK. Let me share some facts with the noble Viscount. Since 4 March 2024, Companies House has made significant progress in tackling false and misleading information on the register, using the new powers under the Act. Companies House has removed some 220,000 false and inappropriate addresses, some 52,000 people named on incorporations without their consent, and over 13,000 documents from the register, including something like 800 false mortgage satisfaction filings that previously required a court order. So we have come some way, but there is still a lot more to do, and Companies House is getting on with it.

My Lords, perhaps the Minister can help me, because I have become very confused. Like the noble Lord, Lord Sikka, I understand from the Financial Times and others that the Government have decided to shelve the reforms in filing for small companies, even though most of those companies have upgraded their software already in order to meet the requirements of Making Tax Digital, so there is very little additional cost to a proper filing. Could he explain that, and also pick up on the pt made by the noble Lord, Lord Sikka, which is that there is broad evidence now that organised crime is increasingly using tools such as AI so that it can front various scams and sanctions-busting by using small companies?

The noble Baroness has obviously read various newspaper reports. I suggest to her, “Don’t believe everything you read from the papers”. As it stands now, most companies have to file abbreviated accounts, which, as the noble Baroness will know, is just a balance sheet. We are asking under this Act for them to file accounts. As I said earlier, we recognise the concerns raised by various stakeholders and we will set up next steps to address those recent concerns. When this happens, a statutory instrument will be placed and noble Lords can debate it.

My Lords, obviously, we welcome sensible steps to reduce unnecessary burdens on small business, but, given the alleged decision to reverse the reforms to small business account filing, have His Majesty’s Government done the necessary work to ensure that reduced financial transparency does not damage creditor confidence, does not hinder investor due diligence and does not restrict access to finance for small companies?

The noble Lord is absolutely right. It is important that people must be able to rely on the data that is on file with Companies House, whether they are doing business with a particular company or to determine whether the company’s financial statements are accurate. Most companies file their accounts on time and accurately. A small minority of companies do not file their accounts on time or, perhaps, properly. This Act hopefully will go after those small companies. We are not imposing burdens on small businesses. We just want to tackle economic crime.

My Lords, on the Economic Crime Act 2023, can my noble friend explain what the Government are doing to block the £90 billion that is laundered through the United Kingdom annually, often by kleptocrats buying properties or via “onshore London” as a means of tax avoidance in UK Overseas Territories or Crown dependencies, labelled “Britain’s second Empire”, such as the Cayman Islands, the British Virgin Islands especially, the Bahamas, Gibraltar, Bermuda and the former UK colonies of Singapore and Hong Kong?

My noble friend makes a very important point. The cost of economic crime and financial opacity is staggering. It costs something like £350 billion a year to this country. Tackling illicit finance has been a top priority for this Government from day 1. We welcome the progress that has been made by many overseas territories in improving access to beneficial ownership registers to boost transparency. For those that have yet to deliver, we have made clear the importance of meeting their agreed-upon commitments and have offered technical help. However, our position is firm. Rapid and robust action is expected. The UK will not tolerate any part of its network being used to conceal dirty money or hinder law enforcement.