Company Formation Suggested At £100 A Company
Should it cost £100 to form a company? That is what appears recommended by the Treasury Select Committee’s Economic Crime Report (“the Report”) dated 2 February 2022.
The report referred to the rise in economic crime and its low priority for law enforcement bodies.
One of the recommendations from the Treasury Select Committee was to increase the cost of registering a company in the UK from the current level of £12 to £100.
The concern is that company misuse in the UK has facilitated money laundering. However, given the scale of money laundering and notwithstanding money laundering regulations since 2007, it is notable the Report said:
National risk assessment of money laundering and terrorist financing provides the latest assessment of the scale of the problem.154 However the risk assessment says merely that:
It remains difficult to quantify the scale of the money laundering threat to the UK, but it is likely there has been an increase in the amount of money being laundered since 2017.
Therefore are the regulations really having their intended impact? It seems notable that in more than ten years of regulations it might still not be properly known what impact they are having.
One of the issues that might be overlooked is that introducing more and more regulation adds to the costs, delays and potential bureaucracy for legitimate business. Even setting up business bank accounts can be a long drawn out process that can hamper normal trading activity.
Is £100 Company Formation Necessary?
The Report refers to the current £12 company formation being out of step with other countries. It was the lowest fee level in 2018 in the European Union.
However, the fee of £12 is not the fee level that many company formation agents will quote. Many will want to make a profit and supply further services. The £12 fee level is simply the lowest direct cost at which a company can be formed in the UK by someone who understands or is able to follow the system.
Furthermore, it is not unknown for even the basic £12 fee to be waived when someone is introduced by a formation agent to other services that they are likely to need, such as banking.
Genuine Entrepreneurs
The Report acknowledged that a fee of £100:
“… would not deter genuine entrepreneurs…”
However, the Report did not appear to acknowledge in a similar way that it would not be likely to deter organised criminals. Furthermore, the suggested additional revenue generated being over £80 million would probably be unlikely to have a significant impact on enforcement matters and the cost would be an additional burden to legitimate business.
The Report says that increasing a fee to £100 may:
deter some formations, reducing the operational demands on Companies House.
Is that a fair and reasonable basis for increasing fees ie. to reduce the workload of Companies House at the potential expense of the facilitation of trade in the UK?
Organised Criminal Activity
The potential problem with such an approach is that it is promoted to make it more challenging for criminal activity to flow through UK companies, yet it seems unlikely such a fee would achieve the same.
The risk is that any change to such procedures may only temporarily inconvenience the criminals. Once they catch up and develop a revised approach to vault the new hurdles placed before them, law enforcement agencies then have to adjust their systems and approach to learn how the criminals have gone about their new strategy. In fact, such an approach potentially risks disrupting already known norms of conduct that can currently be targetted.
The more obstacles you put in the way of the organised criminals, the more obstacles you put before law-abiding citizens as well and the consequential disruption they may face.
The more obstacles you put in place, the more procedures that law enforcement need to take into account; the greater the complexity in enabling a prosecution. Simply, because the more that could go wrong for a prosecutor and the more difficult it might be for a jury to unscramble the facts. This could have a negative impact on conviction rates.
Crucially £100 company formation fee is only likely to address the lowest hanging of criminal fruits. It is improbable that it could have material impact on organised crime with an additional cost of £88 per company. This is likely to not even merit the description ‘a drop in the ocean’.
Without a very significant budget to target organised crime, it is doubtful this would have an impact beyond the potential additional disruption to business.
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