Advice FINANCE forSERVICE newrules
CHARgE ACCounTInG
Important newguidance on accounting and reporting in
relation to residential service charge accounts has just been released and is set to affect thousands of blocks of flats across the country. Nick bulleNexplainswhat it allmeans
Without doubt,awareness of theneed for better servicechargeaccounting is required in order toimprove standards and promote best practiceamong those responsible for collecting,and accounting for, servicecharge monies,whether they are professional propertymanagers or ResidentsManagement Companies(includingRight toManage CompaniesorRTMCos). Newguidance, publishedinOctober,
relatestoresidential leaseholdpropertyon whichvariableservice charges arepaidby flatowners to cover the cost of providing services, repairs,maintenance,improvements, insuranceormanagement. Thebest practice recommendationshavebeenput together byARMAtogether with theAssociation of Chartered Certified Accountants(ACCA), the Institute of Chartered Accountants of England andWales (ICAEW)andthe Royal Institutionof Chartered Surveyors (RICS). See also News p9. Sowhatimpact will the newguidance have
on flatowners andwhat do thosemanaging or self-managing property need to take on board?
Keymessages included in the guidance are that: nAlltenants paying variableservice charges should receive an annual service charge statement fromtheir landlord,RMCor RTMCo within sixmonths of the end of the accounting
year.Thisensures that alltenants areprovidedwithfulldetails of servicecharge costs in a timelymanner, following the
servicechargeperiod. nIt is recommendedthatthe annual statementshouldinclude an incomeand expenditure account and a balance sheet and be prepared on an accruals basis. Theguidance includes an example of a service charge statement. This helpstoensurethatall tenants
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have a fullunderstanding of the financial informationrelatingtothe servicecharges, including the financial position at the end of
the accounting period. nWhere relevant costs canbe recovered in the service charges, all annual statements of accountshouldbesubject to an examination by an independent accountant before issue to flat owners.While appointing an accountant will incur additional costs, it provides assurance to the tenants that the service charge annual statement has been subject to independent
scrutiny. nIf theservice chargestatement is prepared on behalf of anRMCor RTMCo then it should be aseparatestatement to theannualaccounts forthe companywhich need to be filed at CompaniesHouse. This last point is animportant
one.Many
RMCs andRTMCosstill continue to include, incorrectly, service charge transactions in their
accounts.Thismaymean that corporation taxliabilities -ifany -arewronglycalculated. Where this is the case, those responsible for self- managing properties areneglectingtofollow the statutory trust concept relating to service chargetransactions. Theissueastowhether servicechargetransactionsshouldbeincluded in the landlord’sownaccounts has been referred to the‘Urgent Issues Task Force’.Should they decide in favour of inclusion, no additional guidance is expecteduntil 2012. At present,CompaniesHouse appears to
take a softly softly approachto the filingof RMCsandRTMCosstatutory accounts in terms of appropriate disclosuresandthe content of accounts.Ifthepositionchanges following the release of this latestguidance, thenthe impositionofpotential significant late filing
NEwguIdANCE At A glANCE
Followthesesimplesteps to getthemost fromthenew best practice guidance
nEnsure that arrangementsare in placetoensure that theservice chargeaccountscanbeproducedand circulatedwithin6monthsoftheendof theaccountingperiod. nReviewtheclausesin thelease regardingtheobligationsto prepareand circulate theservicechargeaccounts andtherequirement tohavean‘audit’ carriedout. nEnsure thetenants,Residents Association, landlordandmanaging agentsfullyconsideranddiscuss, thewishesandneedsof thetenants regardingtheneedforastatutoryaudit ormerelyanindependentaccountant’s reviewof theservicechargeaccounts, with regardtoanyadditionalcost. nEnsure thatRMCsandRTMCo’s statutoryaccountsexcludetheservice chargeaccountsandtrustbankaccount. nTalk toyouraccountants,ensuring that theyarefullyconversantwith thenewguidanceonservicecharge accounts.
penaltiesmay occurifCompaniesHouserejects filed accounts
closetothefilingdeadline.Such penalties,andthecost of re-workingtheaccounts, mayfail to be recoverable fromthe
tenants.This maybeinadditiontoanycosts,whicharenot recoverablefromtenantswheremorethan18 monthshas elapsedsince thecostwasincurred. To avoidfindingthemselves in this situation, RMCsandRTMCosshouldensurethatthey provideresidentswith servicechargeaccounts within sixmonthstomeettheir obligationsand take specialist advicewherenecessary.●
Nick bullen is a Partner atWhitley Stimpson and a specialist in Service Charge Accounting
Accountingforservicechargesin theproperty industryisaspecialisedareathatrequires expertiseandanunderstandingof thesector. WhitleyStimpsonisable toprovideexpert adviceonallaspects ofservicecharge accountingaswellascontentandformat of statutoryaccounts forRMCsandRTMCos. WhitleyStimpsonareRegisteredAuditors, thusenablingthefirmtoactasauditorsor IndependentAccountantsinrespect ofservice chargeandstatutoryaccountsmatters.
Formoreinformation, contactNickBullen
nickb@whitleystimpson.co.uk tel 01295 270200
www.whitleystimpson.co.uk
Winter 2011 Flat Living
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