We are approx. 25 leasehold flats developed in the mid-80s. The freehold was bought out and the RMC set up about 25 years ago. Our accounts are a complete mess - they appear to be cobbled together on the back of an envelope by the previously-"sole director" and an "accountant" who appears to lack any professional qualifications and may not even exist. It has fallen to me to sort things out.
The RMC does, and never has done, anything other than own the freehold and maintain the property. Nevertheless I appreciate that service charge and company accounting may not be identical.
Apologies if these have been asked and answered before - any advice is much appreciated.
The RMC does, and never has done, anything other than own the freehold and maintain the property. Nevertheless I appreciate that service charge and company accounting may not be identical.
- Most of the income is in the form of service charge. The only other income we usually have is fees charged to solicitors for conveyancing tasks. Do these go into the service charge fund, or are they separate?
- We don't get any interest on the bank account, and even if we did it would be very little at present. Nevertheless would any interest go into the service charge fund or be "company" money?
- Do we have to keep the service charge funds in a physically separate "client trust" bank account, apart from the non-service charge company money (such as it is)? I have seen advice that we do.
- Am I right in thinking that any insurance cashflows (payment of premium and other fees, and payouts on claims) would go through the service charge fund?
- Is it permissible to use service charge money for management of the company as distinct from property upkeep? These would be very small - mainly Companies House charges. The cost of company (as opposed to service charge) accounting is essentially zero, as I am doing it for free in an open-source software package. However, depending on answers to questions above, there might not be enough non-service charge income to cover even these.
- The previously-"sole director" had an item in the service charge of about £1,500 for "Management Fee". This may have covered some small out-of-pocket expenses but mainly stayed in his pocket. In our case is/was that a legitimate service charge item? It is/was also effectively directors' remuneration, although it had never been approved by an AGM as until last year there hadn't been one for many years. Currently the directors take no remuneration (some more happily than others) and any costs personally incurred are expensed directly.
- Can legal fees be covered by service charge money? Does it make any difference exactly what they are for?
- Currently no ground rent is paid, but if it were, would it go into the service charge fund? Most of the flats (the ones which participated in the freehold buyout) have a Supplementary Deed reducing their ground rent to a peppercorn, but the others continued to pay it. At some point in the past the previously-"sole director" decided they "had paid enough" and stopped charging it, but the situation is very unclear and never been formalised.
- Do we have to have an accountant review either or both of the company and service charge accounts? The company falls well below the audit exemption threshold. I can see that it would be a good idea, but is it a legal requirement?
Apologies if these have been asked and answered before - any advice is much appreciated.