Recently, we’ve been answering a lot of questions about the Economic Crime and Corporate Transparency Act (the Act) parts of which came into force a few months ago.
Clearly, there’s still some confusion amongst SME owners as to exactly what the Act entails and whether they should be concerned.
We wanted to write a short blog explaining what you need to know and what we are currently recommending to our clients.
Key provisions affecting small businesses and SMEs
The Economic Crime and Corporate Transparency Act received royal assent at the end of 2023. It builds on the previous Economic Crime (Transparency and Enforcement) Act passed in 2022.
For SMEs, several key regulations are important and could affect their operations.
Companies House, where you register company information, will now play a more active role in preventing and dismantling fraudulent companies.
For small businesses, this means more scrutiny and more transparency.
Under the ‘failure to prevent fraud’ offence, if your business unknowingly becomes a conduit for economic crime, you could be held accountable.
However, so long as you've taken reasonable steps to prevent such malpractices through proper compliance procedures, you should not be held responsible.
What does the Act mandate? A summary
To quickly summarise what the Act entails, here is a bullet point list:
Companies House reforms: The Act introduces measures for preventing the formation and operation of fraudulent companies.
Limited partnerships: It implements reforms to prevent the misuse of limited company status.
Cryptoassets powers: It also grants additional authority to seize and recover suspected criminal cryptoassets.
'Failure to prevent fraud' offence: The Act establishes liability for businesses that fail to prevent staff or third parties from committing economic crimes.
Measures against SLAPPs: It introduces provisions to address strategic lawsuits against public participation.
Duty for large organisations: It also imposes a duty on large organisations (as defined by the Companies Act 2006) to have procedures in place to prevent fraud.
What are the financial and tax implications?
Simply put, financial reporting and accounting are going to get more stringently examined.
The Act demands detailed and transparent reporting, directly impacting how you manage your accounts and taxes.
Expect more paperwork and potentially, more time spent with your accountant.
The positive to this is that it becomes harder for illegitimate businesses to tarnish the market, giving your legitimate business a clearer path to success.
Compliance strategies for SMEs
Staying ahead of the curve is key. You should adopt robust filing and disclosure practices.
If you haven't already, consider talking to your accountant or financial advisor about your tax returns.
We can help you navigate these changes smoothly, ensuring your business remains compliant with the new regulations.
What does the future look like?
While the new regulations may bring some initial challenges, the long-term benefits – a level playing field and enhanced trust in UK businesses – are undeniable.
We are recommending that both existing and prospective clients work closely with ourselves to maintain accurate tax filings, as failure to adhere to the enhanced legislation could create significant complications and possibly financial penalties for your business.
Whatever the case, a quick chat with your accountant could help put your mind at rest.
Speak to one of our team to find out if your current filing practices are up to standard under this new regulation.
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