New guidance from the taxman on how property and “flat management” companies should present their accounts has confused accountants, reports Nick Huber.
HMRC has updated its guidance on rental income, savings income and dividends in its Trusts, Settlements and Estates Manual. The changes cover two areas:
- A updated form 17 Declaration of beneficial interests in joint property income now includes a stipulation that evidence of beneficial interest be provided. Previously HMRC had asked for evidence only in the case of bank and building society interest. The evidence requirement now applies to declarations in respect of all types of property, the ICAEW Tax Faculty explained in a blog post on the subject last week.
- There are also new procedures governing the filing requirements for flat management companies under the new regime. The changes means that property and flat management companies that collect service and maintenance charges from tenants and hold them in interest-bearing trust accounts may have to do more admin, although there are signs that HMRC is trying to lessen the burden.
Under Section 42 of the Landlord and Tenant Act (LTA) 1987, property and flat management companies who are paid service charges and “sinking funds” for maintaining should pay the money into a trust fund, and notify HMRC of the fund.
All clear? Some AccountingWEB.co.uk members are anything but and confusion over rules for flat management accounts is making it difficult for accountants to answer clients’ questions.
In a post in July Zarathrusta said he thought service charges should be treated as money held on trust, and therefore appear outside of the accounts of the flat management company, along with all of the expenses, even if these have gone through the company bank account.
However, he was still unsure about whether dormant accountants can be prepared for the management company, and whether the company should prepare a Trust return for HMRC.
In another thread the same week, Colinwain said a flat management company client had recently asked how the company’s accounts and tax return should be prepared.
Several interesting suggestions were put forward in the two Any Answers threads, most of which seem to have satisfied the authorities to date. But so far no one has provided a definitive answer to Zarathustra’s question whether to prepare dormant accounts for management companies or not.
- HMRC Newsletter for Trust and Estates Practitioners (PDF, Dec 2010, page 4)
- Trusts, Settlements and Estates Manual SEM9000 - Ownership and Income Tax (up to section 9978)
- SEM5700 - Flat management companies
- HMRC Property Income Manual: PM1070 - flat management companies
- Companies House guidance (archived) - Flat Management Companies