The main responsibilities of Companies House are to incorporate and dissolve limited companies, examine and store company information and ensure that the public has access to accurate company details. It provides a useful service when it comes to checking a company’s credibility and strives to keep business details as transparent as possible.
In a bid to safeguard that transparency, the online company register has tabled the biggest changes to its system since 1844 in the form of an anti-fraud reform. An 80-page consultation is available and there’s a call for limited company directors in particular to offer their thoughts about the proposed changes to the business register.
Our Head of Tax and leading IR35 specialist Andy Vessey ATT comments on these changes.
What is Companies House changing?
As well as capping how many concurrent directorships a person can hold, Companies House can now query PSC entries and strike-off limited partnerships.
The directorships cap is the largest of the changes. It acts to restrict the number of accounting year-end movements and new verification of data or identities submitted. This is to prevent fudging numbers to accountants and is a major move against small business fraud.
Writing for ContractorUK, Simon Moore reflects on other changes being made to the business register. He writes:
‘Other changes will hopefully protect people rightfully on the register -- such as by removing their ‘occupation’ as a requirement, to help head off potential misuse “for criminal purposes.”’
‘But the ContractorUK reader recently worried that a violent spouse will locate them because their displayed, registered address is also their home, is not helped under the reforms. This is despite the government admitting it has received “complaints” about CH’s inability to ‘suppress information where the person concerned is at risk of violence or intimidation.'
‘Suppression is going to be looked at, however, both for company directors’ signatures (amid fears showing them facilities fraud), and the ‘day’ entry for DOBs filed before October 2015.’
Despite the above concerns still waiting to be addressed, the main thrust of the current consultation is to reduce/minimise criminal activity by the minority that seeks to abuse personal information.
Why is Companies House making these changes?
In the foreword of the consultation document, Kelly Tolhurst MP, Minister for Small Business, Consumers and Corporate Responsibility, states:
‘Much of this information is publicly available, and free to access online. The UK is recognised as a global leader in corporate transparency. This transparency is one of the cornerstones of the UK’s attractiveness as a location to set up and operate a business. It builds confidence and helps create an environment for growth.’
‘Regrettably, the same factors that make this system successful make it attractive to exploitation. By their nature, corporate entities are vulnerable to misuse. We know that they are used by criminals to facilitate economic crime and to launder the proceeds of crime. Recent years have seen concerns grow about the misuse of UK corporate entities, the filing of false information at Companies House, and the use of innocent people’s information on the companies register to commit fraud and other acts of harm.’
One of the proposals to combat this misuse of business information is that company directors and People with Significant Control (someone that holds more than 25% of shares or voting rights in a company) should be responsible for verifying their identity.
In fact, the government’s starting position is that as many individuals as possible whose name is on the register should be required to verify their identity. However, this should not present too much of a problem to contractors as many may well be not only the sole director but the main shareholder too.
How will these changes affect Companies House users?
The document recognises that most companies on the register tend to be small, with the same individual holding the role of director, Person of Significant Control and shareholder. Thus, when an individual confirms their identity as their role of director then, by default, Companies House would be capturing them in their capacity for other roles in that company. Provided the identification process is not burdensome in terms of time and cost, then I don’t think contractors will be too concerned about this aspect of the proposals.
As well as the aforementioned changes, Companies House also wants more discretion to query information before it is placed on the register and seek further evidence, where appropriate.
One example of this is where a company claims an exemption from filing full accounts and therefore Companies House might request proof that the company is entitled to the exemption. This will not present a problem to those PSCs that file their accounts with HMRC and Companies House at the same time. However, those that stagger the filing because of the timing of filing dates - i.e. 9 months from the end of the accounting period for Companies House but 12 months for C.T. filing – may struggle.
What form of evidence will be required as an exemption from filing full accounts? Most likely it'll be a reference to turnover and balance sheet values, and the number of employees. Furthermore, where accounts are being filed extremely close to deadline and Companies House query information, then are Companies House going to allow a grace period to provide that information before imposing a late filing penalty?
How will Companies House manage these changes?
A major upgrade of Companies Houses systems will be required to accommodate the proposed changes. However, its digital services have not been significantly redeveloped in the last 10 years and are no longer fit for purpose.
In short, Companies House will go through a major transformation in the coming years; as Simon Moore states on ContractorUK, IT contractors are likely to be fundamental to implementing those changes.
It will be interesting to see how Companies House address the ‘off-payroll’ rules. If they take a rigid blanket approach (i.e. roles are caught) they’ll find themselves fishing from a small pool of talent which, in turn, may cause delays. Hopefully, they will have learned a lesson from HMRC’s initial blunder when they sought to tar all contractors working on the MTD programme with the same IR35 brush and suffered a mass exodus.
Additional notes for contractors
A genuine contractor, freelancer or consultant who is in business on their own account shouldn’t have anything to worry about when it comes to IR35. However, contract reviews are always advisable; whilst you may know that they're legitimate, IR35 determinations are notoriously subjective.
Should you want some peace of mind, we offer a full contract review amongst other services to help you prepare for IR35. We’ll give a pass or fail based on the current contract you hold, along with comprehensive comments on how to improve any problem areas.
We also offer IR35 investigation representation from our Head of Tax, resident IR35 expert, and commentator on this article Andy Vessey ATT should it go to tribunal.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.