Companies House identity verification is a governance test for UK start-ups, not a test of entrepreneurship

The reform tests administrative capability, not commercial potential

Companies House identity verification should not be mistaken for a test of enterprise. It cannot validate a product, generate customer demand or repair weak cash flow. Its immediate purpose is narrower: to improve the reliability of the company register and make it harder to use UK corporate structures anonymously or inaccurately.

For founders, however, the practical effect reaches beyond a single identity check. The regime asks whether a company knows who its directors and people with significant control (PSCs) are, whether its records reflect reality, and whether someone can complete the statutory action required when a director is appointed, a confirmation statement falls due or ownership changes. This is why the issue matters now for the UK’s start-up and SME economy. The transition is still underway, and young companies typically have little administrative slack when they are trying to sell, recruit, deliver work and secure finance.

Mandatory identity verification began on 18 November 2025. New directors must verify before incorporation or appointment. Existing directors will generally connect their verified identity through their next confirmation statement, while the route and timing for PSCs depend on their circumstances and the relevant company structure. Crucially, verification is distinct from the role-specific action that links an individual’s verified status to a company record (Companies House, 2026) ↗.

That distinction is more consequential than it appears. Early-stage businesses often run on arrangements that are adequate until a formal event exposes their limits. A founder may have passed verification but not completed the relevant role-linked process. An accountant may normally submit filings, but no one may have clear responsibility for instructing them after a resignation or dispute. A verbal understanding about ownership can coexist with incomplete records of who can authorise a share transfer, appointment or filing.

Companies House’s implementation figures underline the scale rather than proving the absence of friction. It expected 6 to 7 million people to be verified by November 2026. By 31 March 2026, 3 million people had verified through GOV.UK One Login and 783,000 through Authorised Corporate Service Providers (ACSPs); its user research also reported high clarity and ease among people completing the process (Companies House, 2026) ↗. These are encouraging delivery indicators. They do not establish that every legitimate founder has equivalent access to digital tools, documents, language support or affordable professional assistance.

Sanctuary’s judgement is therefore deliberately bounded. Identity verification is not a measure of entrepreneurial quality. It is a test of an adjacent management capability: maintaining a usable chain between legal identity, ownership, authority and deadlines. As a company enters supply chains, employs staff or seeks investment, that capability increasingly supports commercial credibility as well as statutory compliance.

Incorporation numbers are a weak test of proportionality

The policy question is not whether incorporation continues after a compliance obligation is introduced. Formation can remain high while particular groups of legitimate founders face delay, uncertainty or a greater dependence on paid intermediaries. Equally, the existence of an extra step does not itself demonstrate a material barrier to enterprise. The proper test is whether the register becomes more dependable without imposing disproportionate friction on ordinary, legitimate business activity.

Companies House recorded 192,287 incorporations between April and June 2026, with 5,516,377 companies on the register at the end of June. It also recorded 156,515 strike-offs and dissolutions in that quarter, although an interruption to online services between 12 and 16 June affected strike-off activity. The figures show corporate activity continuing at scale, but they are not a clean causal assessment of identity verification (Companies House, 2026) ↗. They cannot tell us, for example, whether a would-be founder abandoned a business, delayed incorporation, used an adviser unnecessarily, or formed a company that never traded.

ONS business-demography statistics answer a different question. The ONS recorded 317,000 business births and 280,000 business deaths in 2024 among businesses registered for VAT and/or PAYE, with around 2.86 million active businesses. This is a measure closer to economically active business activity, but it remains different from the Companies House register: companies can be incorporated before becoming VAT- or PAYE-registered, and some registered companies will never reach that stage (ONS, 2025) ↗. Combining these series into one headline about start-up health would create false precision.

The distinction matters most outside the narrow world of company administration. A local retailer, trades business, hospitality operator or small supplier may be commercially viable while its owner is carrying sales, delivery and compliance alone. For such firms, administrative uncertainty consumes scarce management time at the point where customer acquisition and reliable delivery matter most. The potential economic cost is therefore not simply a filing fee or a few minutes online; it is distraction, delay and the risk of a routine corporate action failing at an inconvenient moment.

International evidence supports the mechanism, but not a verdict on this UK reform. Klapper, Laeven and Rajan found that more burdensome entry regulation can reduce the formation of new limited-liability firms, particularly in sectors with greater natural entry. Their study neither evaluates UK identity verification nor establishes that this regime will suppress formation. It does support the narrower proposition that costs, delays and uncertainty can affect entry decisions at the margin (Klapper, Laeven and Rajan, 2006) ↗.

There is also a serious counterargument. A register with more reliable information about directors and controllers can reduce uncertainty for customers, lenders, landlords and suppliers. That institutional trust may benefit legitimate SMEs, particularly those trying to establish credibility beyond a founder’s personal network. The policy challenge is not deregulation by default. It is proportional implementation: straightforward cases should remain straightforward, while founders with overseas residence, non-standard documents or complex ownership should have workable routes that do not make paid intermediation an unavoidable toll.

The real operational risk is a broken chain of identity, authority and timing

The new regime creates a chain of dependencies. A verified person receives a Companies House personal code, which must be used in the appropriate process to connect that identity to the relevant company role. The code belongs to the individual, not the company, and Companies House advises that it should be shared only with people trusted to make the necessary filing (Companies House, 2026) ↗.

The business implication is simple but important. A company needs a current view of its directors and PSCs; each in-scope individual must take the required action; someone must be authorised to file; and the information must be available when the event occurs. A failure in one link can delay an appointment, confirmation statement or ownership change even where the underlying business is legitimate and otherwise well managed.

The consequences should be neither exaggerated nor ignored. Companies House states that a confirmation statement cannot be filed unless all directors are verified. It also states that continuing to act as a director after the applicable deadline without meeting the requirements may be an offence. Its approach to non-compliance starts with information, reminders and guidance, but can escalate to financial penalties, prosecution or referral to the Insolvency Service depending on the circumstances (Companies House, 2025) ↗. A good-faith oversight should not be assumed to trigger the most severe response. But a problem left unresolved can become legal, commercial and managerial at once.

Early data suggest that the transition has prompted record maintenance, though they do not establish the cause of every change. The Government’s third ECCTA progress report recorded a 68% year-on-year increase in accepted director changes and a 62% increase in accepted PSC changes in the week before mandatory verification began. It also reported a 24% increase in strike-off applications between 18 November 2025 and 31 March 2026 compared with the equivalent period a year earlier (Department for Business and Trade, 2026) ↗. These movements are consistent with a clean-up of dormant, inaccurate or no-longer-needed structures. They are not proof that verification caused each change, nor evidence that every strike-off reflects non-compliance.

For a growing company, the most costly consequence may be interruption at a sensitive point: an investor requests evidence of control, a lender carries out diligence, a director needs to be appointed, or a confirmation statement is due while the founder is focused elsewhere. Verification does not replace commercial due diligence. It can reduce one elementary uncertainty: whether the people recorded as directors and controllers are identifiable, and whether the company can carry out its own statutory actions.

A proportionate response: minimum viable governance

The appropriate response for most young businesses is not a corporate governance programme designed for a listed company. It is a minimum control system that prevents information, authority and accountability from drifting apart as the business changes. The following is operational guidance rather than legal advice; companies with complex ownership, corporate PSCs, nominee arrangements or overseas structures may need regulated professional support.

First, maintain a one-page company map. It should identify current directors, PSCs, the company secretary where relevant, the accountant or filing agent, and the internal owner for each significant statutory action. Reconcile it periodically with the Companies House register and the company’s own ownership records. A planned share transfer, resignation, appointment or change in control should have a named person responsible for identifying its filing implications.

Second, record status without building an unnecessary store of sensitive data. The company should know whether each relevant person has completed verification, which role is involved and whether the required role-linking action is complete. It should also know who is trusted to use a personal code for a necessary filing. A personal code should not become a general corporate password held in a broadly accessible shared drive, cap-table pack or informal message history.

Third, assign owners as well as dates. A practical calendar should include the confirmation statement, annual accounts and other relevant tax, payroll, VAT, insurance and shareholder-consent events. Advisers can support delivery, but an internal owner should be able to establish the status of each action and resolve missing information. This is particularly valuable if a founder becomes unavailable, a co-founder relationship deteriorates or the business begins preparing for finance.

Fourth, test the system using a real scenario. Could the business answer within one working day: who owns it; who can appoint or remove a director; who can instruct the filing agent; where that authority is recorded; and what statutory action is next? If the answer depends on one person’s memory, an old email thread or an adviser who has not been contacted, the company has identified an operational weakness that is usually inexpensive to fix.

Where an ACSP is used, founders should confirm that it is authorised and understands the Companies House identity-verification standard. ACSPs may charge for their services, so scope, responsibilities and escalation routes should be agreed in advance (Companies House, 2026) ↗ ↗. The aim is not compliance theatre. It is to stop avoidable administration from taking attention away from sales, delivery, employment and the activity that creates local economic value.

How the reform should be judged after the transition

The case for identity verification should be evaluated by outcomes rather than by the existence of the rule. A cleaner register would be a meaningful administrative gain, but would not on its own demonstrate stronger entrepreneurship, productivity or employment. Conversely, an initial rise in support requests, adviser use or record changes would not automatically show failure: transitions can reveal inaccuracies that pre-date the reform.

A useful evaluation framework would track completion by verification route; the nature and persistence of support needs; enforcement patterns; evidence of non-completion among otherwise legitimate users; and the availability and cost of intermediary assistance. Companies House register data and ONS business-demography statistics should both be monitored, but retained as distinct indicators because they describe different business populations and stages of activity (Companies House, 2026; ONS, 2025) ↗ ↗.

The present evidence supports a cautious base case: straightforward founder-director cases should be manageable through direct or assisted routes, while the greatest operational burden is likely to fall on businesses with stale records, multiple entities, overseas arrangements or poorly documented ownership. On that reading, the reform is principally a governance and management-capability intervention, not a broad measure of whether Britain remains open to entrepreneurship.

That conclusion should change if official data or credible independent evaluation show sustained exclusion of legitimate founders, burdens concentrated among identifiable groups, adviser bottlenecks, or deterioration in formation and early trading outcomes that can plausibly be separated from wider economic conditions. Supporters should equally resist declaring success merely because the register becomes more complete.

For founders, the practical opportunity is modest but valuable. Clear ownership, defined authority, protected filing access and known deadlines cannot make an unviable business viable. They can make a viable business less likely to lose time, credibility or commercial momentum to an avoidable administrative failure.