How will the changes introduced by the Economic Crime and Corporate Transparency Act 2023 (ECCTA) affect Charities?

EECTA will impact any charity established as a company itself, or which has, or may in the future have, a company within its structure (e.g. a trading subsidiary company or a corporate trustee). As charitable companies are dual regulated by both Companies House and the Charity Commission, it is crucial to be aware of the scope of the reforms.

As you can imagine for such large changes, the provisions of ECCTA are being brought in by a phased roll out.

The first tranche of provisions came into force on 4 March 2024 and included:

• greater powers to query information and request supporting evidence – the role of Companies House changes from a ‘record keeper’ to a ‘gatekeeper’. Companies House has new broad powers to check, reject or remove information from its registers that is inaccurate, incomplete or misleading;
• stronger checks on company names – the names of companies, where the name might be used to facilitate a crime, impersonate another entity or mislead customers can now be queried;
• new rules for registered office addresses – all companies must have an appropriate address at all times and they will not be able to use a PO Box. Companies will, however, still be permitted to use agents (for example, solicitors and accountants);
• a requirement for all companies to supply a registered email address to Companies House – for new companies, this will be a requirement on incorporation and, for existing companies, they will be expected to provide one when completing their annual confirmation statement;
• a requirement for subscribers to confirm they’re forming a company for a lawful purpose when they incorporate, and for a company to confirm its intended future activities will be lawful on each confirmation statement;
• greater powers to tackle and remove factually inaccurate information from Companies House registers;
• the ability to share data with other government departments and law enforcement agencies; and
• a range of new enforcement powers to complement the new provisions. The powers include:
  • financial penalties;
  • annotations to the company’s records; and
  • prosecution.

The later phases of ECCTA are expected to bring in wider reforms, but we are awaiting further information on this. We have summarised the anticipated upcoming changes below, but no action needs to be taken on these yet:

• Identity verification – it will be necessary for anyone setting up, running, or controlling a company in the UK to verify their identity. The exact process for ID verification will be put in place by Companies House, but we expect those needing ID checks being required to send in ID documents, such as a passport or drivers’ license.
• Changes to accounts – Companies House will be moving to software-only accounts filing. This is intended to make filings more efficient and secure, and to improve the quality of data on the register. This will pave the way for Companies House to then have a formal requirement for companies to file accounts digitally, so we recommend that you start the process of finding suitable software for doing so early on.
• Transparency of company ownership – companies will be required to record the full name of their members at Companies House and provide a one-off full member list.
• Protecting personal information – individuals will be permitted to apply for the exclusion of certain information from public historical documents.
• Additionally, if the inclusion of personal information at Companies House places an individual at risk of physical harm or violence, they can apply to have the following information removed in its entirety from public view:
  • name (or previous names);
  • sensitive addresses where public disclosure puts its residents at risk (for example, a women’s domestic abuse refuge);
  • in the most serious cases, all other details, for example, service address and partial date of birth.

In addition, ECCTA introduces a new criminal offence – failing to prevent fraud. This offence will be relevant to large charities which are corporate bodies or partnerships and who meet two out of three criteria below:

• More than 250 employees;
• More than £36 million turnover;
• More than £18 million in total assets.

The failure to prevent fraud offence confers liability on the organisation when a specified fraud offence is committee by an employer or agent of the organisation for the organisation’s benefit and the organisation did not have ‘reasonable’ fraud prevention procedures in place. As such, it is very similar in requirements to the current Bribery Act. Any charities who meet the criteria above must ensure they have sufficient fraud prevention policies and procedures in place before this comes into force.

While technically not a provision of the EECTA, implementing a ban on corporate directors has been a key part of the government’s consultations around corporate transparency. As such, the Government has confirmed its intention to bring into force its existing powers to restrict the use of corporate directors in parallel with ECCTA. Only UK corporate entities with ‘legal personality’ will be permitted be appointed as corporate directors and the directors of these corporate directors must be natural persons and must verify their identity.

We will be keeping a careful eye on when these further changes are being brought in, so now is a great time to sign up to our email updates and if you would like to get ahead of these changes please get in touch.