Pictured: Nick Bullen
Important and potentially controversial new guidance on
accounting and reporting in relation to residential service charge
accounts for residential properties has just been released and is
set to affect thousands of blocks of flats across the country.
Nick Bullen, Partner at Whitley Stimpson and specialist in the
Service Charge Accounting explains: "Without doubt, awareness of
the need for better service charge accounting is required in order
to improve standards and promote best practice in the
administration of service charge accounting. However the issue as
to whether the service charge transactions should be included in
the landlord's own accounts has been referred to the 'Urgent Issues
Task Force' to deliberate on. Should they do so, no additional
guidance is expected until 2012."
This guidance relates to residential leasehold property on which
variable service charges are paid by leaseholders in accordance
with their leases to cover the cost of providingservices, repairs,
maintenance, improvement, insurance or management. It has been
prepared by a joint working group comprising representatives of the
Association of Chartered Certified Accountants (ACCA), the
Institute of Chartered Accountants of England and Wales ICAEW, the
Association of Residential Managing Agents (ARMA) and the Royal
Institution of Chartered Surveyors (RICS).
Some of the key messages on bestpractice in the guidance
include:
All lessees paying variable service charges should receive an
annual service charge statement from their landlord or Residents'
Management Company (RMC) (including Right to Manage Companies
(RTMCo)) within six months of the end of the accounting year.
The annual statement should include an income and expenditure
account and a balance sheet and be prepared on an accruals basis.
This guidance includes an illustrative example of a service charge
statement.
All annual statements of account should be subject to an
examination by an independent accountant before issue to lessees
where the costs can be recovered in the service charges.
If the service charge statement is prepared on behalf of an RMC
or RTMCo then it should be a separate statement to the annual
accounts for the company required to be filed at Companies
House.
Nick goes onto say: "Many RMCs and RTMs still continue to
include, incorrectly, service charge transactions in their accounts
and fail to ensure that corporation tax liabilities, if any, are
correctly calculated and, as such, fail to follow the statutory
trust concept relating to service charge transactions. Companies
House appear to take a softly softly approach to the filing of RMCs
and RTMs statutory accounts in terms of appropriate disclosures and
content of accounts. If the position changes following this
guidance release, then the imposition of potential significant late
filing penalties may occur if Companies House reject filed accounts
close to the filing deadline. Such penalties, and the cost of
re-working the accounts, may fail to be recoverable from the
tenants. This may be in addition to any costs, which are not
recoverable from tenants where more than 18 months has elapsed
since the cost was incurred. RMCs/RTMs should ensure that they
provide their tenants with service charge accounts within 6 months
to meet their obligations."
Accounting for service charges in the property industry is a
specialised area that requires expertise and an understanding of
the sector. For specialist advice in this area please contact Nick
Bullen on nickb@whitleystimpson.co.uk or 01295 270200.