Economic Crime and Corporate Transparency Act 2023

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The Economic Crime and Corporate Transparency Act 2023 (“the 2023 Act”) received Royal Assent on 26^th October 2023. The 2023 Act introduces what has been advertised as the ‘biggest changes in the role of the companies registrar since it was created in 1844’, with Companies House undergoing a ‘full transformation’ from registrar to regulator. The 2023 Act was introduced to help tackle economic crime and to improve transparency over corporate entities.

The changes will affect any charity which is established as a company or which has a company within its structure (e.g. a trading subsidiary company or a corporate director). As a result of the new legislation, the companies registrar now has wider investigation and enforcement powers to enable cross-checking of data with public and private partners. It also has the power to report suspicious activity to security agencies and law enforcement.

Companies House will essentially take on more of the role of a regulator. They will have the power to check, remove, challenge and decline information submitted to or already on the companies register. The result is that the first set of filings at Companies House under this new regime is likely to become more time intensive, so it is important that charities have a good understanding of the process before any important deadlines.

The main changes that charities which have a company within their structure need to be aware of are:-

Identity verification for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar.
Introduction of a new failure to prevent fraud offence.
Requirements for company accounts and filing will change, with a view to improving the accuracy and relevance of the financial information on the register.

Identity Verification

The change that is likely to have the biggest impact on charities is the introduction of identity verification for all new and existing charity trustees (or directors of trading subsidiaries) and anyone that files documents on behalf of the charity. This new regime started on 8^th April 2025 and from that date existing company directors have been able to voluntarily verify their identity at Companies House.

From autumn 2025, identity verification for new directors will become compulsory when incorporating a new company. This will also start a 12 month transition period for existing directors at the end of which verification will be compulsory for all company directors.

By spring 2026, anyone filing a document on behalf of a charity or one of its subsidiaries will be required to undergo the identity verification process. This will include company secretaries as Companies House will not accept any documents from individuals that have not been verified. It is important for all charities that make filings at Companies House to be up to speed with these processes before their annual accounts or confirmation statements are due to be filed to help avoid any unnecessary delays.

If you would like to get ahead of next year’s deadline, then there are two main ways of verifying someone’s identity with Companies House:-

Directly with Companies House: this process is free of charge and by answering the questions on the GOV.UK One Login webpage you will be guided to verify using a mobile phone app or in your web browser.
Use an Authorised Corporate Service Provider (“ACSP”): accountants or law firms who have a registered account will be able to check an individual’s identity and then submit a statement to Companies House on their behalf.

If you cannot verify online and you live in the UK, you may also be able to verify your identity in person at a Post Office. From autumn 2025, all companies in the UK will be prompted to complete the verification process on completion of their next confirmation statement.

Anyone who has not verified their identity will also not be allowed to act as a director, so charities will need to think about this when considering the appointment process of new charity trustees. While these changes add an extra layer of administration for charities, it follows a general trend towards greater transparency within the sector and ties in with the new register of charity trustees which will be shortly be introduced in Scotland.

Failure to Prevent Fraud Offence

The 2023 Act also introduces a new ‘failure to prevent fraud’ offence which takes effect on 1^st September 2025. This new legislation is applicable to all “large organisations” in the UK. A large organisation is one that meets at least two of the following criteria:-

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

In summary, an organisation may be criminally liable where an employee, agent or subsidiary commits a fraud that benefits the organisation and the organisation did not have reasonable fraud prevention procedures in place. It is irrelevant whether the directors or senior managers ordered or knew about the fraud that was taking place.

The key takeaway from the legislation is that it is important for all organisations to have robust fraud prevention procedures. Ultimately if an offence was committed it will be a matter for the court to decide whether the fraud prevention procedures that a company had in place were reasonable in all the circumstances. Although individuals will not be held personally liable for a company’s failings (apart from those that committed the fraud), any ruling could have a significant impact on a charity’s reputation and financial penalties may be imposed.

The accompanying guidance for the legislation provides examples of reasonable fraud prevention procedures that organisations should consider introducing or refining. This includes communicating and endorsing the charity’s stance on preventing fraud and ensuring that there is clear governance across the organisation in respect of the fraud prevention framework. It is also recommended that senior managers commit to allocating a reasonable and proportionate budget specifically for the leadership, staffing and implementation of the fraud prevention plan, including training. Organisations are being encouraged to carry out risk assessments to identify areas where fraud may arise.

While this new legislation is targeted at “large organisations”, this shows a direction of travel for the regulator. It serves as a worthwhile reminder to all charities to think about their fraud prevention procedures.

Filing of Annual Accounts

The 2023 Act changes how companies report information and what information they report, when filing their annual accounts with Companies House. Charitable companies will no longer be able to send hard copies of their annual accounts to Companies House and will have to file these accounts electronically using acceptable software.

Companies House are not yet in a position to announce when these changes will come into place due to the complexity, but we will provide further information as soon as it becomes available.