Letting Agency

Letting Agency

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Hello

A letting agent collects rent from a tenant deducts their % for management fees and passes the balance onto the landlord.. All money passes through the letting agents client monies bank account. 
 
The management fee part is straightforward income for the letting agenet but please can someone clarify how the balance is treated;
 
a) for VAT purposes ?
b) for accounts purposes ?
 
To give an example, say the rent to a tenant is £1000 (domestic properties only)
the agent collects the rent from the tenant and pays the landlord less its management fee at say 10% £100 (85.10 + VAT)
 
The £900 passes through a bank account owned by the letting agent so is this an exempt supply ? and in this case would the partial exemption rules on VAT apply?
 
A further question would then be in the accounts is the £900 treated as income to the company offset by a £900 expenditure?
 
I might be over complicating things but I want to make sure I get it right ...

Replies (6)

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By ShirleyM
29th Oct 2010 16:47

Client account

It isn't their money ... it is the clients, therefore not income! If not income, then no expense either.

Be aware, there are special regulations re this type of client money account and the administration of it. I cannot remember all the details, but they are quite onerous.

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By shahidkhawaja
30th Oct 2010 02:04

Client Account

Firstly it is imperative to keep separate the transactions of the office account and that of the client account.

In your example, the £100 (inc vat) should be transferred (physically) which is income for the letting agent and declared on to the vat return. The balance is transferred to the landlord.

At any given point in time, the client bank account should always mirror the creditor also called client account. If it doesn't there is a problem.

Finally check the association they are registered with i.e. RICS, ARLA as they have strict rules for client monies.

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By aadil
30th Oct 2010 20:01

Double entry...

 It may be easier to understand in terms of double entry...

 

Debit Client Account                   1000

Credit Rents to Landlord Account                 1000

Being rent received from tenant

 

Debit Rents to Landlord Account                    900

Credit Client Account                                                     900

Rents forwarded to landlord (minus commission)

 

Debit Rents to Landlord Account                       100

Credit  Commissions receivable                                  86

Credit Vat Control                                                        14

Being commission

 

I hope the above helps to understand that the £900 does not touch the P&L account at all

 

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By Mark Johnston
26th Feb 2018 21:46

I know I'm a little late joining this discussion(!), but it's very relevant to my own situation.

If the letting agent offers a 'fully managed service', i.e. organises maintenance, cleaning etc., do such costs also stay off the P&L?

The agency handles a lot of properties and they would ideally like to report on the different costs (compare properties, periods etc.) but if these costs are just deducted from the landlord account on the BS, it's going to be difficult to report on them.

Thanks in advance.

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Replying to Mark Johnston:
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By andy.partridge
26th Feb 2018 22:08

Mark, everyone that was involved in the question from 8 years ago is dead after the cataclysmic effect of an asteroid crashing to earth.

The income of a letting agency is derived from the commission earned from landlords from one or more services in respect of letting their property. That’s about it.

It is usual for such an agency to operate specialist software which may or may not interface automatically with the accounting system to provide the management information you seek.

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Replying to andy.partridge:
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By Mark Johnston
26th Feb 2018 22:28

Glad you're still with us anyway Andy!

Thanks for that

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