New rules affecting all UK companies and Limited Liability Partnerships (LLP’s) have come into force requiring you to keep a register of your people with significant control. It is a criminal offense to fail to do so.
From 6th April 2016, People with Significant Control (PSC’s) over a company or LLP need to be registered and their details filed with Companies House. The new rules are a response to considerable public and media pressure to make company ownership transparent, and will assist authorities in dealing with tax evasion and money laundering.
What is a PSC?
An individual only has to meet one of a number of qualifying criteria to be classed as a PSC.
Anyone who holds more than 25% of the shares in, or more than 25% of voting rights in the company is automatically a PSC. You can easily identify individuals who fall into either of these categories from the company’s register of members.
Anyone who holds the right to appoint or remove the majority of the board of directors of the company is also classed as a PSC. These sorts of rights are set out in the Articles of Association or equivalent (LLP Agreement, for example), but may also be set out in Shareholders’ Agreements.
These conditions can also be met indirectly if, for example, an individual holds their rights through another company. However, different rules apply where a company is owned or controlled by another entity, and you will need to look at the effective control and who controls that other entity.
This is more complicated. The new law requires that a PSC is a person has a right to exercise significant influence or actually exercises significant influence. However, the rules do not (yet) apply to a person and his/her connected people. So, in a family business, with five family members, each holding 20% of the company, there is no PSC based on the main definition, but if, for example, the father of the family acts so that all the others do in fact vote as he requires, he becomes a PSC. This would be very hard to prove.
Similar complications apply to trusts. The rules are simple: if a trust is a PSC, anybody holding the right to exercise significant influence or control over the trust or firm may also be considered a PSC of the company. But we know that in a discretionary trust no-one will have that right except the trustees, therefore the rules extend to anyone who can exercise significant influence over the trustees. We expect that the interpretation of this situation will depend on precise circumstances.
Nominee holdings will present similar problems, but it is important to note that the historical situation in which there was no obligation to disclose a nominee arrangement in a private company may have been undone by the new Regulations.
While HMRC’s interpretation of the new law is not conclusive, as it is government perspective, you may want to read the principles and situations set out in the government guidance, or contact us for advice.
Placing an individual on the PSC register
After identifying a PSC, you’ll need to confirm their details before entering them on the PSC register. The details you need include:
- Date of birth
- Where they live
- Usual residential address and service address, if they use one
- When the individual became a PSC
- Which conditions for being a PSC are met
The full HMRC guidance to the rules includes instructions on what to do if the controlling entity is another company. Companies are required to determine actively their PSC’s.
Acquiring, recording and providing information
You’ll be required to take reasonable steps to contact your company’s PSCs to gather and confirm information. You may even need to go as far as placing restrictions on the shares or voting rights of an individual withholding information to ensure compliance.
The traditional Annual Return form is being replaced with a new Confirmation Statement, from 30 June 2016, and companies are required to provide Companies House with the information on the PSC register. In addition, a copy of the PSC register must be made available for inspection on request at your company’s registered office.
Updating information and failure to comply
The above is a brief summary. You must keep your PSC register up-to-date.
As with all new legislation, elements will need to be tested in the Courts and HMRC’s information is only their interpretation of statute. But the consequences for failing to comply are serious and criminal.
You need to act now – and if you have any questions, please contact the Hillier Hopkins team, we’d be delighted to help.