Company registration in the UK

The UK Government is reforming Companies House and the company registration regime in the UK. This is in response to concerns raised about the vulnerability of the company registration system to abuse, and the reliability of the company data collected and published by Companies House.

Ease of incorporation

According to the World Bank, the UK is one of the easiest places in the world to register a company, and the Government intends for it to remain “quick easy and affordable”.

Until 1 May 2024, the fee to incorporate a company online was £12. These fees increased on 1 May 2024 to £50, but remain some of the lowest in the world. For comparison, the average cost of registering a limited company in the European Union in 2018 was 300 euros (around £260).

The Department for Business and Trade highlights the fact that a private limited UK company can be set up in just 24 hours.

Companies House is an executive agency of the Department for Business and Trade responsible for:

• incorporating and dissolving limited companies
• examining and storing company information
• making information available to the public.

Challenges that accompany ease of incorporation

There is currently no requirement for the directors of UK companies to verify their identities or their addresses, before setting up a company. There is also no requirement to have a UK based director or shareholder when setting up a company.

Critics have argued that the low barriers to registering a company and limited identification checks leave the UK system vulnerable to abuse [subscription only]. The UK companies register contained around 5.2 million companies in December 2023. At the start of 2023, the Department for Business and Trade estimated that there were only 2.1 million companies actively trading.

Financial risk assessment firm Moody’s found globally the UK has the highest number of companies displaying behaviours which they found to be commonly associated with shell companies (PDF). Shell companies are registered companies with no significant assets or operations, often without employees or offices. There can be legitimate reasons to set up shell companies, however, they can be used for illegal or unethical practices.

The ease of company registration in the UK has led to widespread press reports of fraudulent company registrations. For example, in late 2023, forty-eight companies registered to Chinese nationals were registered to unconnected residential addresses in one street in Swansea.

Financial crime expert Graham Barrow told the BBC that fraudsters set up multiple fake companies in the UK to either launder money or to obtain bank accounts and take out loans.

Economic Crime and Corporate Transparency Act 2023

The Government passed legislation in 2023 to address these challenges. The Economic Crime and Corporate Transparency Act 2023 (ECCTA) introduced new objectives for the Companies House registrar including to ensure the register is accurate and not misleading, and to prevent companies from carrying out unlawful activities.

A number of these changes came into force on 4 March 2024:

• Companies House were given the power to proactively investigate and query information on the register, and request supporting evidence to support information being filed.
• Companies House’s abilities to share information with law enforcement agencies were enhanced.
• It became an offence for companies not to register an ‘appropriate address’.
• The rules restricting the naming of companies were strengthened.

Companies House have not yet confirmed how they will identify false information, nor whether they will actively monitor filings, or rely on receiving complaints to direct their investigations.

They have stated that they won’t act on all the information they receive, instead prioritising cases which pose the biggest risk to the integrity of the register.

The ECCTA introduced powers for Companies House to require identification and address verification. However, secondary legislation will be required before the checks can be enacted and the Government confirmed that the rules won’t change until 2025. Further reforms to be introduced include the ability to apply to remove personal details from the register, and the move to require all companies to submit their documents using specific software.

Cost of reform

The Government pledged a total of £63 million to support the reform of Companies House between 2022-23 and 2024-25, around £20 million per year. Companies House will also keep the additional funding from the increased fees since 1 May 2024. Despite this, Kathryn Westmore of think-tank Rusi, quoted in the Financial Times [subscription only], has argued that not enough resources are available to effectively reform the system.

In its 2022 impact assessment accompanying the ECCTA, the Government forecast the total cost of the reforms to business to be £289 million. They forecast the costliest individual measure to be the costs of company directors having to understand and undertake identity verification. The Department forecast that the estimated value of the improved accuracy of the register would more than offset the additional costs to business.

Outstanding challenges

Despite the significant reforms to Companies House, financial crime and tax campaigner Dan Neidle argues that not enough has been done to prevent abuse of the regime. The financial crime expert Graham Barrow states in the Financial Times [subscription only] that identity verification will not necessarily prevent financial crime. He points out that banks have long carried out anti-money laundering verification checks, without successfully blocking criminals’ access to the financial system.