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8 Federation of Private Residents’ Associations Newsletter Ask the FPRA continued from page seven

Accounts anxiety Q

Our management company has now separated the service charge account from the company’s accounts but I am getting conflicting advice about the items, if any, that should be included in both the service charge and company accounts. For example, one accountant insists that “you should show liabilities whether invoiced or not, if for no other reason than the certification under the lease or S21 will require that”. I plan to prepare and submit the company’s accounts myself, because: • there are only around 20 transactions • the sources of income are limited to Ground Rent Shareholder Levy, and repayment of any loans to the SC account

• the main expenditures are FPRA fees, stationary, printing, telephone and AGM expenses


• the expenditure in 2013/14 amounts to less than £200. I would be grateful of any guidance you can give me. FPRA Hon Consultant Gordon Whelan replies: Service charge accounts There are three main sources available to you for assisting with the preparation of service charge accounts: 1. The lease. The lease should be referred to in the first instance, to determine if there are any special requirements relating to the service charge accounts. For example, the service charge year end and the type of accountants report required to go with the accounts (if any) 2. TECH03/11. This is the technical guidance note for preparing service charge accounts and is considered best practice. The guidance includes example layouts for the format that service charge accounts should take. The guidance requires accounts to be prepared on an “accruals” basis unless the lease states otherwise. The accruals basis requires expenditure to be recorded in the period that it relates to rather than the period when it is paid. This is consistent with the comment made by the accountant you refer to. 3. RICS Management code. There is a section in the RICS code on accounting for service charges (Part 10) and this should be referred to also. The reference to a section 21 report is slightly spurious as this type of report is only required if a lessee requests it. However, the report does require a detailed analysis of expenditure consistent with an accruals approach. This type of report must be signed by a registered auditor. Company accounts TECH 03/11 did not give any guidance on what should be included in statutory accounts and this matter is still the subject of consultation (the document is termed FRED50). Clear guidance has not been given on this matter to date which is very confusing for everyone. However, most industry experts consider the separation of service charge transactions and company transactions to be best practice.


Issue No. 110 Autumn 2014

The statutory accounts should be prepared in accordance with the Companies Act and this is an area where you may need assistance from a qualified accountant. On the items you list, you should remember that the income from ground rents is subject to corporation tax. Again, this is an area where the assistance of a qualified accountant, preferably specialising in service charge accounting, would be advisable.


Fly-tipping I am chairman of a management company for some 41 flats and freehold properties. We also own the freehold to the overall site, and around 50 per cent of the site is woodland. One of our neighbours whose land abuts ours is dumping his grass cuttings over the fence onto our land. I have discussed this with the neighbour and got a very truculent and unsatisfactory response, heavy on “it’s natural”, “it’s not doing any harm”, and “it’s been going on for a long time”. Are they in fact breaking the law, and if so what? FPRA Hon Consultant Yashmin Mistry replies: The actions described may well be regarded as “fly-tipping” of sorts. There is a good website on fly-tipping which contains some good guidance notes: It is usually practice for fly-tipping to be reported to the local authority/council. This website gives some more information on where and who to report such matters to: report-flytipping.


Items stored in meter cupboards In your last issue (109, Summer 2014) there was an article “Valuable Wine in Common Parts”. We currently have a similar problem – not wine, but personal items stored in the meter cupboard. In the reply from FPRA, Hon Consultant Colin Cohen mentions it would be against health & safety legislation to store any items in the cupboards which house any power. In our case it is a meter room for electricity and water meters. Can you let us know where we can find the details of the health & safety legislation please? FPRA Hon Consultant Colin Cohen replies: I have now heard back from my health and safety advisers and can answer this query as follows: The issue of storage in service cupboards is primarily a fire one and therefore covered by the Fire Safety Order 2005. These regulations require premises to have a Fire Risk Assessment and are supported by Home Office guidance and two local authority guidance publications. In the case of a purpose-built block of flats (as opposed a conversion) the guidance in purpose-built blocks applies. Generally the risks are two fold, anything that can burn or is fire loading, should a fuse overheat within a cupboard or cable short, any combustibles within the cupboard may catch fire and start a fire burning. If something metal is stored it could under certain circumstances cause a short circuit resulting in a fire or an explosion.

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