Companies House has served as a record-keeping hub since 1844, when the concept of mandatory company registration was first introduced in the UK. Today, finance teams will be all too familiar with the system and the challenges it faces – not least the lack of action in addressing tax fraud and bogus entities. It is estimated that around 5% of company registrations are fraudulent, although some suggest the figure could be as high as 20%.
In a bid to increase transparency, new powers have been granted to Companies House to verify filings and investigate suspected trickery.
From autumn, businesses will be required to undergo a new identity verification process to deter those wishing to use the system for illegal purposes. It has been proposed that small companies must also file profit-and-loss statements to ensure that key information, such as turnover, is available on the public register – though the final decision on this has been delayed. And from 1 April 2026 businesses will be required to use commercial software to file annual accounts and tax returns with HMRC.
These new rules have left finance professionals divided. Some argue they will help stem the rising tide of financial fraud, protect legitimate businesses and deepen trust in the UK market. Others fear the unwanted overhead cost and question why smaller companies need to reveal their profits and losses to competitors. Or indeed anyone. They argue that these new rules, while essential, could overwhelm firms already struggling to meet existing regulatory requirements.
A step towards a more secure business environment
The Companies House reforms are a welcome and much-needed change. For years, it’s been far too easy to set up a company in the UK with few to no checks, creating a huge loophole for fraud.
Just recently, a couple discovered they were victims of identity fraud after their address was changed without consent and fake companies were set up in their name. This is part of a wider, systemic problem. In 2022, around 770,000 new companies were registered with Companies House and it’s estimated that around 155,000 were fake. These bogus entities were often created using stolen identities or credit cards and are used to commit fraud or hide money.
Making directors prove their identity and requiring accountants and other professionals to register as official company service providers brings more accountability into the system. Reducing the risk of identity misuse will also boost investor and consumer confidence in UK companies.
With the introduction of these new rules, Companies House has stepped up – and it’s time for firms to do the same. They may come with additional workload and compliance costs, but such concerns pale in comparison to the economic damage from fraud.
Businesses have plenty of time to prepare for tighter controls and new compliance steps to avoid disruption and penalties for non-compliance. Furthermore, accounting teams that adapt early will not only protect their business, but benefit from faster onboarding.
Overall, the safeguards brought in will be hugely beneficial in the long term. While they will not eliminate financial crime overnight, they represent a step towards a more secure and trustworthy business environment. This will strengthen the country’s reputation as a place to do business and push the accounting sector into the digital age.
A costly administrative burden
The new Companies House rules are needed, but the way in which they are being prescribed is going to have a significant negative impact on businesses.
Verifying directors’ identities and ensuring filings meet tighter accuracy standards all add to the compliance burden. Many firms may need to review internal processes and train staff to meet these new expectations. If businesses aren’t adequately staffed, this exercise will eat into precious resources – taking time away from more critical tasks.
As with any new mandatory process, it will take time to get right. Accountants will need to get to grips with the new requirements, which may slow down critical filings. For accountants, this may damage client relationships and trust if HMRC is not satisfied with an identity verification. Adding a new layer of technical or procedural work always increases the likelihood of errors, which impacts submissions.
At the same time, the requirement to file full profit-and-loss accounts means less privacy for smaller firms and more scrutiny of their financials, which risks negatively impacting client relationships and competitive positioning.
Another downside of these new changes is how much actual fraud reduction is achieved. Identity verification will undoubtedly raise costs, and it’s hard to say that the costs will outweigh the benefits for most legitimate users. Accountants who already act above board will incur a higher liability exposure too.
Finally, for foreign clients, identity verification may be harder to carry out and could hinder international business formation. At a time when the Labour government is calling for less red tape, these new rules add an additional layer of complexity for accountants and their clients to deal with.
Without support, smaller businesses and accountancy firms in particular are in serious danger of fines, reputational damage and consequent closure.
Companies House has served as a record-keeping hub since 1844, when the concept of mandatory company registration was first introduced in the UK. Today, finance teams will be all too familiar with the system and the challenges it faces – not least the lack of action in addressing tax fraud and bogus entities. It is estimated that around 5% of company registrations are fraudulent, although some suggest the figure could be as high as 20%.
In a bid to increase transparency, new powers have been granted to Companies House to verify filings and investigate suspected trickery.
From autumn, businesses will be required to undergo a new identity verification process to deter those wishing to use the system for illegal purposes. It has been proposed that small companies must also file profit-and-loss statements to ensure that key information, such as turnover, is available on the public register – though the final decision on this has been delayed. And from 1 April 2026 businesses will be required to use commercial software to file annual accounts and tax returns with HMRC.
