Catherine Feechan: Government is using a sledgehammer to crack a nut

A consultation on the Government’s upgrade of Companies House (CH), which could result in the biggest shake-up in the way companies are registered and regulated in over 150 years, closes next week.

Catherine Feechan is a Partner and Corporate Finance specialist, Davidson Chalmers Stewart

The focus is on tackling misuse of CH registers and ensuring their accuracy, with the Government claiming this will benefit business owners by giving them new protections against fraud. There are, however, concerns that ministers are devising a sledgehammer to crack a nut with the prospect of introducing unnecessary and excessive compliance measures that could adversely impact on many businesses, especially SMEs.

The reforms would place new compliance requirements on all companies registered in the UK with proposals including the introduction of ID checks for directors, shareholders and those who file information on behalf of a business at CH.

CH would also be given greater powers to request additional information from companies, for example when there is any significant change to a company’s share capital or a company claims exemption from the requirement to file a full set of accounts. Any details filed at CH could also be checked against information held by other government agencies such as HMRC and the police. New procedures for submitting annual accounts including a standard format and further limitations on changes to accounting reference periods are part of the plans as well as a new requirement for a company to provide full details of any bank account opened overseas within 14 days.

While some proposals have merit, they will significantly increase the compliance burden and costs for all private companies and their professional advisers. They would also represent a huge overhaul for CH, significantly altering its primary role of registering and administering UK businesses to one of intensive compliance checking.

The Government is keen to address ‘almost 10,000 complaints’ to CH in the last three years about misuse of individuals’ personal details and other forms of fraud. These concerns cannot be ignored but must be addressed in a proportionate manner. Many proposals would, if implemented in their current form, make what are currently simple aspects of running a company far more complex and significantly more expensive.

The UK has benefited from an open, liberal regime which encourages entrepreneurship and makes it easy for companies to set up and grow. These proposals represent a move away from that approach. The vast majority of businesses are run by law-abiding people who already face an increasing amount of red tape in their day to day operations. The Government should be aiming to make operating their companies easier, not more difficult.

The PSC (Persons of Significant Control) Register introduced in 2016 serves as an example of a similar Government initiative which has so far proved over-complex and ineffective. Most companies struggle to understand what information they are required to provide for their PSC register and as a result many are simply ticking any box just to complete the process which then provides government and other agencies with incorrect an inconsistent information. The PSC Register has also failed to substantially eradicate fraud and other illegal activity as criminals either ignore or circumvent such compliance measures.

It is imperative that resources should be invested through other agencies to tackle fraud and money laundering, core issues the Government is seeking to address through these CH reforms. However, at present, many of the proposals appear to amount to little more than box-ticking exercises which will enable ministers to point to proactivity, albeit misguided proactivity, in seeking to address a problem.

I would hope that when the consultation closes, the Government will take a very measured approach, weeding out the more burdensome proposals before the introduction of any new legislation. Some of the measures such as preventing abuses in the way some companies file their accounts would be of significant benefit and should be retained. The spirit of any legislation must, however, consider the wider impact on businesses, especially SMEs. If all the proposals are to be implemented, the Government should certainly consider providing an opt-out for smaller companies which can least afford the extra resources needed to comply with new rules as currently proposed.

At a time when the UK is facing new challenges and uncertainties, the business community can ill-afford another raft of bureaucratic legislation, especially if it fails to deliver widespread benefit and could potentially damage our economy.

Catherine Feechan is a Partner and Corporate Finance specialist, Davidson Chalmers Stewart