I have recently taken on a property management company comprising of 8 houses. Each householder is a director of the company and they each pay a service charge into the company bank account annually, to pay for maintenance and repairs. I have drafted the income statement but it is currently showing as making a profit due to the sevice charge income, although the householders do not make a profit. I wondered if anybody had had an experience of this type of company and if so, how did you account for this? I contacted HMRC and they have said that they will treat the company as dormant as long as the profit remains around the same figure. The problem is, the householders pay in money annually so the pot will continue to build up gradually until the money is needed to fund any repairs or maintenance to the estate. Any help would be greatly appreciated.
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Irrespective of what they do actually pay what are they legally obliged to pay?
If the overpaid sums are not allowed for/ envisaged/dealt with within the titles/property agreement/whatever, and are therefore potentially due to be refunded to the individuals if requested, treating as creditors would appear to deal with the issue re the excess amounts received.
The key is why do the extra amounts received arise in the first place.
You dont show it as 'profit' but rather 'surplus'. Then you can call the 'accumulated profit reserve' a 'general' reserve or set up an additional specfic fund, eg 'tree maintenance fund'. You will need to amend the accounting policies too to describe what the reserves are used for. Have you had a look at ICAEW Tech 3/11. This might help.
Are we talking about service charge accounts, or company accounts, as the two are often different.
If the company acts as an agent holding the assets on behalf of the members, then you could have a situation where company is completely dormant, but service charge accounts showing the income and expenditure are required.
OP read the tech release. It sounds like you are 'unfamiliar with' these types of accounts and likely to get them wrong.
Ive put a couple of pointers below. Once you've gone through those (and the tech release) then if you still end up with a surplus in the company it 'might' be possible to enter a provision for works to be carried out - again, depends on the leases and also what has been agreed and minuted by the directors....
They are not legally obliged to pay anything .
Are you sure? Have you read the leases? This would be most unusual (to the extent that I doubt it is the case)
It is the company accounts I was talking about. The company was originally dormant, but then a bank account was created for the income/expenses which meant it was no longer dormant.
It may have made it 'not dormant' but does that mean it had transactions in its own right, or was it just holding monies on behalf of the residents?
In any case was it actually 'dormant' before? When was the land conveyed?
As the householders accept that they have an obligation to contribute to the communal expenses of the estate, this would appear to be a straightforward Residents' Management Company. You should be preparing service charge accounts in accordance with Tech 03/11 and dormant statutory company accounts.
Have a look at this current thread and this recent thread.