BREXIT: Will the UK become an offshore haven

One of the charges levelled at Brexit has been the likelihood of the UK becoming an offshore haven for foreign companies, the implication being that overseas investors who establish companies in the UK are motivated simply by a desire to avoid or reduce taxes.

Well on occasion maybe…….. but in our experience there are many perfectly legitimate reasons for non UK residents wanting to set up UK companies. For instance the UK is recognised as being relatively incorruptible compared to certain other nations, hence there are a disproportionately high number of overseas owned companies registering with the UK’s Companies House, compared to other jurisdictions. Potential judicial corruption in some countries can force non-British business owners to register their businesses in the UK simply to guard against “share-raiding” i.e. bribery-induced shifting of ownership on the official records. Registering your company in the UK can significantly reduce this risk.

That said, the benefits of owning a UK business can be just as attractive to the non legitimate as the legitimate businessman. Hence the significant due diligence that has to be undertaken by UK Company Formation Agents every time they establish a new company.

Extensive checks have to be carried out to check the bona fides of individuals who are potential company officers and owners. Depending on the risk assessment these may include:

• Proof of ID
• Proof of address
• Personal references
• Bank statements
• Due diligence on business relationships
• Travel records

Many of these checks are required to be carried out face to face or certified by a competent authority.

Adherence to such processes ensures that the UK legal and regulatory system continues to hold the respect of the rest of the world.

Increasingly however, individuals, whether British citizens or not, choose to form a company using the online formation process offered by Companies House. The excellent service has certain advantages in being quick, cheap and easy to use.

One would anticipate that such a system would conform to all the due diligence that would apply were the company to be formed by a formation agent. But surprisingly that is not the case.

Company Registration Agents are classified as Trust or Company Service Providers, subject to audit and inspection to ensure that they are performing all this necessary due diligence. They have to be registered with HMRC or SRA if they are a legal firm. However, since Companies House is not considered a commercial provider of these services it is not required to subject users of its online registration system to this same due diligence. This applies whether the users, founders of these new companies, are based in the UK or abroad.

Analysis shows that around 20,000 companies a month are formed using Companies House Direct which means some 240,000 per annum are being formed without any due diligence whatsoever. This equates to 40% of the total number of companies formed per annum and the percentage is growing.

Whatever your view of Brexit it is probably a reality that the demand for UK registered companies from those outside of the UK will also continue to increase. But the door has been left open for illegitimate business people in the UK and beyond to swerve all the due diligence required from Company Registration Agents.

This issue has been raised with Companies House by the industry and others. It is now high time for this loophole to be closed.