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Residents Association Limited Co

Are residents association limited companies treated as dormant by HMRC for corporation tax purposes?

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As above, can someone confirm that HMRC class residents association limited companies as dormant for corporation tax purposes please.

No trading, just collecting residents annual  fees, and spending them. 

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By Wanderer
11th Mar 2020 17:46

Generally yes.
https://webarchive.nationalarchives.gov.uk/20110617024602/http://www.hmr...
As from 1 April 1998, residential service charges received by occupier controlled flat management companies will ordinarily be outside the scope of Schedule A since, under correct accountancy principles, it will not usually be correct to include in the computation of profits sums to which the landlord is not beneficially entitled.

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RLI
By lionofludesch
11th Mar 2020 17:54

Yes.

Unless there's some income from outside the residents. Or some other unusual situation.

They might get a return every few years to confirm nothing has changed.

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By David Heaton
11th Mar 2020 17:59

First of all, check the articles, just in case.

The company might exist to hold the legal (but not beneficial) interest in the freehold and nothing else, with each leaseholder owning one share. If it also acts as the agent of the residents, all the transactions should not appear in its own P&L account, as it is the residents who are contracting, via the company. Any monies held by the company, including a sinking fund for major repairs, are typically held by it as bare trustee for the residents, so again they are not a company asset and do not give rise to profits or losses. The company prepares a trust income and expenditure account to report to the residents each year, but that's nothing to do with the company's CT position.

Having said all that, I have seen such companies prepare accounts and CT returns as if they were trading in property management. It took some effort to unscramble it where that had been incorrect in the circumstances of the company, but it's conceivable that unusual circumstances could exist which lead to income that is not just a contribution by leaseholders towards their own expenses.

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Replying to David Heaton:
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By thevaliant
12th Mar 2020 01:09

Although I'm long out the game of leasehold now, there is a reason that flat management companies (Which are likely to be very different from a 'residents association') should show income and expenditure.

Who bears the costs? The FMC.
If a gardener is employed, and isn't paid, who should he sue? The 100 residents jointly and severally under some sort of bare trust situation? That isn't going to work. It would be the company which had contracted with him, the company which paid his costs, and the company which instructed him.

I personally think the current guidance is wrong. These companies ARE active. They collect money (which may not be taxable income, but IS income) and spend it. Pretending all this is done under a trust arrangement, or just doesn't happen at all appears wrong.

But I know I'm in the minority here. It's one of the few times I can point to a bank account and show ins and outs, yet every accountant in the land shouts that the company doesn't do anything!

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Replying to thevaliant:
RLI
By lionofludesch
12th Mar 2020 05:05

I agree with you, Valiant.

It is the company which contracts with third parties.

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By Accountant A
15th Jun 2020 20:39

-9u

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By thevaliant
12th Mar 2020 19:25

As an aside, and appreciating OP has done a runner from this thread, it would be helpful to know whether by 'Residents Association' you mean a formal flat management company (possibly either RTE or RTM company) that is a named party to the lease.... OR

A genuine residents association for a block, where it is NOT a named party on the lease but collects voluntary subscriptions from residents and then uses funds to pay legal costs spent usually fighting unscrupulous freeholders and management companies.

The two are very different in terms of activity, though I suspect both would be classed as non-trading for HMRC purposes.

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