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Residents Management Company

Residents Management Company

Given the recent technical guidance from ACCA/ICAEW and UITF information sheet 92 can someone please confirm my thoughts.

I have a residents management company which owns the freehold with a statutory year end of 30 June.  The lease states service charge accounts should be prepared to 31 March.

Following the UITF I understand that the RMCo is acting as principal and therefore the statutory accounts should include only the ground rent received and corporation tax thereon.  Service charges and associated expenditure needs to be included in the service charge accounts to the date specified in the lease  ie 31 March.

Both ground rents and service charges are collect via one bank account.  I therefore assume that in the statutory accounts there needs to be net debtor to the service charge accounts until the ground rents are collected (ie CR Ground rent (SAY) £1,000, DR Corporation tax (SAY) £200, Debtor to balance (SAY) £800.

Have I missed anything?


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26th Jul 2012 00:01

Think you have it back to front

Per the proposed guidance if the company is acting as principal (or undisclosed agent) then it must incorporate the lot (rent & service charge transactions), as if all the money belongs to, and is contolled by, it.  It's only if the company makes it clear to supliers etc that it's acting as agent that it can ignore the S.Charge monies in its own books.

So when you say that you understand that the company is acting as principal, is that because of your reading of the UITF consultation or what you understand to be the case with this company?

To be honest, as nothing is set in stone yet, if I had your situation, in which the leases call for separate S/ch accounts, to a different period end, I'd stick with that for the time being and treat the bank account balance relating to service charges as outside the company's books.

Don't have the UITF proposals to hand but didn't think they pronounced on the tax side of things?  Not sure if HMRC have commented yet either but I'd not be happy disclosing S/ch surpluses & deficits as taxable, even if in the company accounts. 

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26th Jul 2012 03:20

There is no authority NOT to prepare company accounts.

Change the company accounting year end to 31st March if the lease,memo and articles allow.

Add an additional column on the non-statutory profit and loss account to include only service

chargeable income and expenditure and charge non=service chargeable items against ground rents.Assume no Grs taxable after charging repairs and renewals.

Write to HMRC for dispensation NOT to file CT600 and company accounts.




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26th Jul 2012 10:49

Proposed UITF guidance

The ICAEW's request to the UITF was an attempt to get out of the hole which it dug for itself with Tech 01/10 after obtaining legal counsel's opinion that even where the RMC is comprised only of the leasehold tenants and is not the landlord, it is still subject to the Landlord & Tenant legislation which makes the service charges paid to the RMC trust funds which do not belong to the RMC.  Although the draft UITF guidance is a welcome improvement on Tech 01/10, by including the communal expenses in the RMC's accounts in most cases, it still continues the underlying belief that the service charges are trust funds on which the RMC can draw to pay the communal expenses, but cannot include in its balance sheet.  Presumably, the "management" side of things will always produce a breakeven P&L.  I believe that such statutory RMC accounts would satisfy the requirement to prepare service charge accounts, even if they also include the freeholder's rental income and expenses.  It is just daft that the only things excluded from the statutory accounts of the RMC will be the bank balance and the accumulated surplus/deficit, but I guess that they can be disclosed by way of note.

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26th Jul 2012 11:25

but there is no trust

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30th Jul 2012 10:39

@uktaxpal -


What makes you think there is no trust? My understanding was that there was a statutory trust created by the Landlord & Tenant Act/

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30th Jul 2012 11:20

Counsel in the previous draft stated that there was a "pool of money" but no trust.

Baroness scotland (Hansard) held that in the case of a freehold owning FMC a S.42 L&T would not apply as fiduciary duties are already owed by the Directors of the FMC.

An NHS Trust is not a trust just because it is called a Trust.



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31st Jul 2012 11:58

The problem

I have is this

If there is a trust and a sinking fund has been built up what happens when a tennant moves. Presumably they could ask for the money back or 'sell' their share to thje new tennant. This will not happen. Additionally who would be able to sue for nonpayment of service charges?

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31st Jul 2012 12:08


Will you all stop this debate!!!!!!!!!!  I suggest you all spend your time instead requesting the Accounting Council step outsode of their comfortable debating rooms and issue some simple rules that make sense and that we can all then adopt without question!

To contribute above you must love the incessant debate about overtly and unnecessarily complicated accounting rules and taking (or wasting) your time flexing your knowledge muscles and demonstrating you superior intellect against each other.

I as a user of accountingweb am simply a practitioner craving clear and conclusive guidance to advise the hundreds of leaseholders who pay service charges to companies I prepare the accounts for.  The real person on the street we are trying to help and guide by prepare meaningful accounting records could not give a jot about any of this.  THEY JUST WANT CONSISTENT GUIDANCE AND ASSURANCE THEIR MONEY IS BEING SPENT IN THE RIGHT WAY!!!!!

Perhaps you could instead add comments about how the Accounting Council could resolve the situation once and for all.


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31st Jul 2012 12:44

What do you think gtcb?

I too am exhausted with this and am pleased to agree with Euan's summary of the current situation in his posting above. 

My only emphasis would be to say that either the tenants or the leases will probably require more information than that given in the company's P&L, especially in regard to demands sent out for service charges v expenditure made and the accumulating surplus/deficit, and so this may or may not be served by an extra note in the company's accounts, ie it may still be sensible to do a separate set of S-C accounts, even in summary form, especially if the accounting years differ.

It's not ideal but then, given the conflict in property & accounting law/regs, I don't think there is a solution that can provide the unified and simple route you are after, so vociferously......or maybe there is?

Given your experience what would you suggest is the way to resolve this, the draft consultation is open to comments until the end of the day for your recommendations.

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31st Jul 2012 15:08

What I think

I appreciate the gravity of the problem.  I simply think we spend a great deal of time thinking of the complications and tweeks rather than overriding changes.

Yes they shelved alternative legislation.  Yes they did some good work towards guidance of providing some assurance for leaseholder and landlords with the consultation and guidance on factual reports.  No, we don't want any continuing doubt about the service charge, interest, ground rent tax position.

I deal at the small end of the market (from 4 to 100 units in a development) and these are the common problems I see;

1  Full statutory audit reports signed off for £240 fees.

2  Leases of management companies still referring to audit on developments as small as four units.

3  AGMs of old folk who have no idea they can challenge and get involved in the running of the PMC let alone comprehending a deemed trust and the intricacies of LTA v COAct.

4  Differing guidance and advice stemming from the regulatory bodies advice panels.

5  Impossible recoverability of accounts prep jobs when seeking to do an accurate and fair job (because the sector is totally under regulated) as other providers do a very poor job and charge a v.low fee.

Irrespective of the treatment of the service charges and where they are reported, until the majority if not all the above are resolved, owners will be confused, accounts will be misleading and accountants will be in the middle.  I am seriously considering just closing our doors to any PMCs in the future.  They just don't make commercial sense any more.

And to top it off, I met with the head of a massive Property Manager who expects 100% sample testing on purchase invoices!!  On a development of 120 units each paying over £15k in services charges per annum.

IMHO, the accounting rules need to be created with disregard to the contents of the lease for audit purposes.  This should be determined by the managing agent and board of representatives of the management company with no recourse unless conflicts of interest are proven.

In addition, I believe to simplify matters, the company accounts should disclose all the monies, assets and expenditure under the control of the board, irrespective of if the money is held in trust.  If necessary, a suitable worded service charge statement in terminology legible and comprehendible to the user should be attached and made available.

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31st Jul 2012 15:36

And don't forget the tax!

A great summary of where we stand today and yes, you are not the first to suggest on here that RMC's should be be avoided at all costs.

For several years, when trust tax rates differed from CT rates many were disclosing interest earned on SC monies via the Ltd Company rather than trust tax return.  In one case I took over the auditor had not actually declared it anywhere.  There is still risk here but fortunately interest rates are now insignificant for most.

At the moment something major has to shift before you can bring the funds of L&TA service charges into a legally distinct Ltd Company and that has to come from the property law side, but I'll be retired before that happens.

I do not agree that leases can be ignored in this respect they are still the bible.  Better, as in the case of requiring an audit, to get them brought into the 21st century.

Whilst I take an interest in this and have inherited some real messes from accountants who just repeated the mistakes of the previous X years, it is still a storm in a teacup in the big scheme of accountancy so I dare say I'll be getting my barge pole out soon.



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31st Jul 2012 15:55


I had two of these left and got rid as I couldn't seem to get to grips with the current ill defined situation.

And everyone wanted their two-pennarth at the AGM.

Not enough fees to justify the heartache. Let someone else do it for five hundred quid.

Why do they make it so overcomplicated.

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31st Jul 2012 15:58

Too much?

And to find a tax contact at HMRC that has a clue about CT v Trust Tax would be refreshing.  Interesting to here that the Ltd v Trust issue is partly of the tax payers making.  

OK, the lease part might be a step too far for some.  However, it is so common to see developments where lawyers supply leases for say a 10 unit development referring to auditing the accounts and expenditure statement....in the 21st century.  No one wants a full statutory audit or to have to pay to have all the leases altered (unless I am missing something that simplifies the process and reduces the cost of altering leases).

Perhaps it is a good idea to consult in order to issue guidance to the Law Society (or, to flatter egos, form a working party together with them) to educate property solicitors about the problem being caused by the reference to audit.  Or maybe we should keep quiet and not give them ideas for greater fees when altering leases??

I certainly know of agents who simply ignore the reference, but surely this cannot be allowed to persist at the risk a leaseholder could withhold service charge monies as the terms of the lease have not been followed?!

Eloquently written by the way Paul.  Just a shame your name has red connotations. ;) 



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to Glennzy
01st Aug 2012 12:44

Definition of audit

Grantthechelseaboy wrote:

OK, the lease part might be a step too far for some.  However, it is so common to see developments where lawyers supply leases for say a 10 unit development referring to auditing the accounts and expenditure statement....in the 21st century.  No one wants a full statutory audit or to have to pay to have all the leases altered (unless I am missing something that simplifies the process and reduces the cost of altering leases).


It's been a while since I've seen one of these, but my memory is that the reference to an SC audit in a lease should not be construed to be an audit under the Companies Act. There's usually a restriction that the procedures must be carried out by a statutory auditor (or similar such language) but it is not referring to a CA audit.

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31st Jul 2012 15:59

Hear not here btw.  Numbers

Hear not here btw.  Numbers are more my thing!

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31st Jul 2012 16:51

I hoped you wouln't mention agents

I used to deal with a firm of large property agents in Surrey (they know who they are) "XXX Managing Agents" and ended up addressing all letters & emails to XXX NQ Managing Agents, eventually one of them asked what it meant and I said "Not Quite".  Many I've come across just follow the principle mentioned above, ie repeating the mistakes of the previous X years.

To their credit, in an effort to try and clarify the confusion, HMRC issued guidance on the difference between the Ltd Company and Trust funds created by the L&TA about 13 years ago I think.  Well written but completely ignored by most accountants & agents.



gtcb - I'm the real original (Green) Scholes he's an imposter.



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01st Aug 2012 13:28

Lets hope the UITF will eventually issue a credible information sheet.

I cannot add to what has been said above--good summaries.

Dont think you should withdraw from the market.


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01st Aug 2012 13:45

Swan Song

This was the UITF swan song as they are now no longer having been absorbed into the FRC (I think)

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29th Dec 2014 11:36

Service charges

I am a registered proprietor of my flat with Absolute Title.  There is a Tripartite Underlease expiring 2115.  In total 93 properties "substantially thesame" written in the Lease, divided into three blocks of about30.  The Lease states that the demised premises are held by or in trust for the Lessor who is an exempt charity. The Assets transferred from the Lessor via TR1 12 June 2013 to the RMC Trust.   There is an LVT Judgement 2010 that no service charge payable until Accounts produced in accordance with 7th Schedule which covenants also that accounts be audited annually.

The s/c accounts have not been produced for several years.

What your discussions above miss out is the potential for misuse of s/c funds. There is no evidence in our case that s/c properly collected.  Demands are not  under the name of the RMC Trust nor is its  registered address shown in breach of s.48.  Particulars to provide evidence to support the Demand were also not included.

Even though there is a Judgement, I received a statutory demand for s/c  costs not included in the Lease by a firm of solicitors who did not put the correct registered address of the RMC Trust on the Demand..  The Deputy Judge at the Civil Court proceeded with the Hearing knowing that I was unable to attend for medical reasons and a letter sent three weeks before the Hearing from a Senior Consultant at local Hospital was disregarded.  

This was a Deputy Judge and  suggests that this Judge has no understanding of leasehold property ownership.  A request to Vary the Judgement  that I was medically unfit to attend and lack of Particulars was rejected by another Judge.   The Judge did  agree to transfer to the FTPT (without realising I believe that the FTPT will continue to demand s/c accounts to meet the LVT Judgement)   As I understand it the Demand is unenforceable under s.48 because the registered address of the RMC Trust incorrect, and the LVT Judgement remains valid and enforceable.  I also understand that the Audited Annual Accounts are also  to meet AML Regs.  .These Solicitors are sending round Bailiffs and this is intimidation.  

I have reported the Judges to the Ministryof Justice. This is a breach of my Human Rights Act for peaceable enjoyment of my property. 







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