Enforcement: Register of Overseas Entities Breaches

We now have greater clarity as to how Companies House will deal with enforcement of the UK’s Register of Overseas Entities (ROE) regime.

Reforms under the Economic Crime and Corporate Transparency Act 2023, including significant changes to the Companies Act 2006, incorporates a vital focus on achieving full transparency of the true beneficial ownership of properties. To that end, far more stringent requirements in relation to the contact details of directors to be registered at Companies House (CH) are now in place: foreign beneficial owners included.

The ROE regime

By way of reminder, the ROE was created as part of a drive to tackle abuses of corporate entities and of the register. When a new company is being set up, the individuals running, owning or controlling the company must verify their identities with CH (following strict new requirements).

Further requirements are being introduced under new regulations (see our January 2024 article here).

Enforcement

CH has now released updated guidance setting its approach to enforcement where ROE-related offences are committed. While its powers are significant – and note that financial penalties can be severe - enforcement will be preceded with ‘information, support and guidance’.

In the event of a continuing breach, CH will consider:

· Its nature and seriousness

· How the breach has affected individuals, businesses and the integrity of the companies registers

· The novelty and duration of the issue

· The public interest

Whether other agencies are already taking, or contemplating, action in relation to the matter

Enforcement of the rules could include restrictions on properties, civil financial penalties and/or criminal prosecution. When imposing a penalty or other action, CH will weigh up factors, including any risk to (and impact on) people and the economy, the seriousness of the breach and the cost/benefit and public interest of taking action.

Where CH decides to impose a financial penalty, it will be based on the ‘value’ of property held by an overseas entity. But rather than carrying out a property valuation, CH indicates it will use a tiered approach based on the property’s council tax band or (if none) its business rateable value. If neither is available its value will be based on the UK House Price Index or, failing that, a medium-level penalty (currently, £20,000) will be imposed.

Any existing aggravating or mitigating factors may also be taken into account when considered an appropriate fine.

While there is a right of appeal to the High Court, prevention is better than risking attracting the attention of CH – and potential enforcement action.

It is vital that overseas entities with a beneficial ownership in UK property regularly review their ownership structures and check and update the register as required.

If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you