New house rules: reforming company registration

Companies House is to be extensively reformed into a more active body under new government proposals.

The Registrar will be given powers to become a custodian of more verifiable information rather than just a keeper of submitted company records. One key change will see all smaller companies filing a profit and loss account.

Smaller Companies

There are some 4.4 million active companies registered with Companies House, and the vast majority of these are micro-entities or small companies. Businesses in these two categories do not have to file a profit and loss account, and the information provided by a micro-entity can be as little as just three figures: total fixed assets, current assets and current liabilities.

The existing minimum disclosure requirements for micro-entities are attractive to fraudsters and can be exploited by companies that do not meet the eligibility criteria. Current rules are not sufficient to properly check eligibility.

Filing a profit and loss account will mean sensitive commercial information is readily available to a company’s competitors. Employees, customers, family members and any other interested parties will also be able to see how profitable a company is. In addition:

• Small companies will lose the option of preparing abridged accounts, so a full balance sheet will be required.
• Small companies will have to file a directors’ report.

Other important changes

The reform will see 58 changes across nine areas, including:

New querying power Companies House will be able to query information either before it is placed on the register or post-registration. Enhanced removal powers will see fraudulent information swiftly removed.

Identity verification Directors and persons with significant control will be required to verify their identities.

Shareholders Full names will have to be recorded, for example, David Smith rather than D Smith. Also, private companies will need to provide a one-off list of all current shareholders, with any changes updated?annually. Currently, it can be difficult to see who all the current shareholders of a company are.

Corporate directors A corporate director will only be permitted if registered in the UK and the company directors are natural persons. This is in line with a number of prominent overseas jurisdictions.

Data sharing Companies House will have new powers to proactively share data with law enforcement and other relevant agencies.

Director's Liability

HMRC has various powers that enable it to pierce the corporate veil and make directors personally responsible for a company’s tax debts. When it comes to national insurance contributions (NICs), HMRC can issue a personal liability notice (PLN) if the failure to pay contributions can be attributed to fraud or neglect. In a recent appeal to the First-Tier Tribunal, a sole director issued with a PIN did not believe he had been neglectful. Neglect is where someone either omits to do what a reasonable person would do or does what a person taking reasonable precautions wouldn’t have done.

• HMRC attested that the director had been neglectful in prioritising payments to himself and to related companies despite accumulating debts with HMRC.
• The director’s defence was weakened by his track record: he had also been the sole director of two similar companies which had both gone into liquidation owing tax to HMRC.
• The director argued the failure to pay was not neglect but due to poor business decisions in a difficult marketplace (somewhat countered by having run similar companies before), and that a time-to-pay arrangement had been set up to clear the outstanding tax (although these payments were not maintained for long).

Perhaps not surprisingly, the appeal failed. HMRC does not issue PLNs lightly. Most instances involve serial evaders where there seems to be a good chance of recovering the debt.

For help with company-related matters, just get in touch with a member of the team on 020 7625 4545.