Companies House Reform - Introduction of ID Verification

Under new laws announced by the Government, Companies House reform will take place, requiring anyone who is registering a company to verify their ID. In this post, we’ll explore what this means for UK business owners. Let’s get started.

Why is Companies House reform necessary?

The role of Companies House is to:

Register company information
Make this information publicly available

At the moment, Companies House accepts documentation in good faith. They have a duty to accept properly presented information with little control when it comes to ensuring that the company details they are given – and then publish – are legitimate. This means that a company could be incorporated with false or fraudulent information.

For example, with some very basic personal information, such as a name and date of birth, an individual could form a company in the name of someone else.

Whilst such activity is illegal, Companies House has no statutory power to verify the information that they collect. This is all set to change.

Companies House to be granted new powers

In recent years, this laissez-faire approach to company formation has drawn criticism from politicians and media outlets. However, action has now been taken.

The Economic Crime and Corporate Transparency Bill 2022 will give Companies House new powers that will allow the registrar to verify the identity of any individual attempting to form a new company or file documentation for an existing company.

If Companies House is not satisfied that the ID information that has been provided is legitimate, they will be able to challenge and reject the information.

GOV.UK: “Individuals who register companies or file with the Registrar will have to prove they are who they say they are by verifying their identity. This will make it much harder to register fictitious directors or beneficial owners, stopping the vast majority of fraudulent appointments from reaching the Companies House register.”

What is identity verification and how will it affect the company formation process?

Identity verification is the process of checking that an individual is exactly who they say they are. This can be done by various means – for example, by checking information presented against registers used by banks and credit reference agencies, by electronic facial recognition, or by cross-checking an official document, such as a passport or driving license, with a current image of the person in question.

Examining the identity of an individual is now considered a vital step in combatting identity fraud and the ongoing growth of shell companies.

Exactly how identity verification will be implemented into Companies House incorporation journey is not yet known. However, the Government has confirmed that this will be ‘mainly via a digital’ service but there will be ‘alternative methods’ for anyone who is reluctant or unable to provide their identity information online.

The Government will no doubt be taking the lead from company formation agents, such as Rapid Formations, and online challenger banks, such as Monzo and Tide, who allow their users – as part of the onboarding process – to seamlessly upload their ID verification documentation and an image of themselves via a smartphone.

Once uploaded, identity checks are often completed within a matter of minutes, allowing the user to proceed with their application.

What does this reform mean for you?

Ultimately, it depends on where you are on your business journey.

New companies

People who wish to set up a new company with Companies House will have an extra step added to their company formation, where they will need to upload identity information for all directors and people with significant control. As mentioned, there will also be an offline facility for providing this information.

Whilst this will lengthen the process, as long as the person tasked with the company formation has all the necessary information to hand – and the Companies House mechanism for the upload is efficient – it should not greatly impact how long it takes to register a company. However, Companies House offline facility is likely to significantly impact formation times.

If the information provided is not deemed suitable, Companies House will reject the company formation:

“Where a query is raised by the registrar pre-registration, the filing will be rejected, and a reason provided. The entity will be able to re-submit the filing, ensuring that the query has been addressed, and supplying information if it is required. Should a filing be re-submitted with the query remaining unaddressed or not resolved satisfactorily, it may continue to be rejected.”

Existing companies

Directors and people with significant control of existing companies that were set up, without providing ID, will need to retrospectively provide identity documentation within a set period of time (to be defined in secondary legislation).

Whilst not confirmed, it is expected that an individual will only need to verify their ID once, and not every time they complete a filing for their company (for example, whenever they file a confirmation statement).

What if you form your company via a company formation agent?

Whether you form your company directly with Companies House or through a third-party such as an accountant or company formation agent (like us), you will still need to go through the identity check process.

The process for providing the necessary identity information may differ slightly depending on who you choose to form your company with.

In many ways, company formation agents have a head start. For a number of years, they have been required to collect identity verification information for their customers and persons with significant control (PSC). This is because they are regulated by the Money Laundering and Terrorist Financing (Amendment) Regulations 2019, and Know Your Customer (KYC) guidelines.

Will my ID information be placed on the public register?

When you form and maintain a limited company, certain information about the company and the individuals within it is placed on the Companies House public register. It’s this transparency that makes the UK company structure so esteemed, and the Economic Crime and Corporate Transparency Bill has been brought in to protect (and enhance) this very thing.

Nonetheless, any concerns about personal information – such as ID documentation – being placed on the public register is understandable.

It’s therefore important to confirm that copies of passports/driving licenses and pictures of individuals will be kept off the register and only be made available to (as set out on GOV.UK):