Flat Management Companies - GBA9
Contents
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Introduction
This booklet is for people who manage a company that has been incorporated to manage a property divided into a number of separate flats. Usually, the company will own the freehold but sometimes it will hold a headlease instead. Under legislation introduced on 27 September 2004, the property may be held as commonhold, where the common parts are owned and managed by a ‘commonhold association'.
This booklet is aimed at smaller companies, as the arrangements of larger flat management companies can be complex and are best handled by professionals. It covers some of the possible questions you will need to consider such as:
- Do we need a limited company?
- If we have a company, what will our responsibilities be?
It also gives advice on how to keep accounting records and how to understand the accounts that are prepared from them. It does not explain the statutory framework governing the format in which accounts must be prepared, or the complex and lengthy accountancy rules.
This booklet is a general source of information for companies registered under the Companies Act:
- it does not explain the process by which leaseholders may acquire the right to manage their own premises. Information on RTM (right to manage) companies is available from the Office of the Deputy Prime Minister (tel. 020 7944 4400 or visit www.odpm.gov.uk) ;
- it does not explain the law on commonhold or how to set up a commonhold association. Information on commonhold associations is available from the Department for Constitutional Affairs (tel. 020 7210 8614 or visit www.dca.gov.uk) .
However, RTM companies and commonhold associations are incorporated under the Companies Act and the information in this booklet generally applies to them.
This is a guide only. If you are in any doubt, you should seek independent help from an accountant or solicitor.
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Chapter 1
Do you need a company?
1. What is a limited company?
In law, a limited company is a 'person' in its own right. This means it can own property (such as a freehold or leasehold) and enter into contracts in its own name. It exists independently and separately from the people involved.
When a property is divided into a number of flats, each flat owner usually has a lease of their own flat but they may also hold shares in a management company that owns the freehold (or lease) of the entire building. As shareholders, the flat owners have their say in running the limited company. Normally, the company's constitution will say that shareholders who sell their flats must also transfer their shares to the new owners. This ensures that - at any given time - the limited company represents the interests of all the current flat owners. However, it remains a separate legal entity regardless of who holds its shares from time to time.
| Some limited companies do not have shares and are instead 'limited by guarantee'. In England and Wales, this includes commonhold associations and RTM companies. If your company is limited by guarantee, it means that the members have agreed to contribute to the assets of the company if it is wound up. In this booklet, the terms 'shareholder' and 'member' mean the people who own the company. |
Instead of having a company, you may wish to consider two other options:
- If your organisation does not own property but simply collects money from residents for repairs and maintenance, and pays bills when they arise, then less formal arrangements may be appropriate such as a residents association.
- Residents could consider buying the freehold of their properties in their own names or as trustees.
Ask a solicitor or accountant to tell you whether one of these options would best suit your circumstances.
2 Why have a limited company?
One reason why residents of a block of flats would have a company is to own the freehold or 'head lease'. Freehold gives outright ownership of the property to the company. A 'head lease' is a lease granted directly to the company, who may in turn grant subleases of the property (or parts of it) to the flat owners. For the purposes of this booklet, the difference between a company that owns a freehold and one that holds a 'head lease' is immaterial. However, the company is also often used for collecting a central pool of cash for carrying out repairs and maintenance to common parts of the property. Often it is a condition of buying a flat that the buyer becomes a member or shareholder of the company. In some cases all flat owners automatically become directors. See question 5 about directors' responsibilities.
Another reason why a company would be set up is so that leaseholders of flats can exercise their right to manage the building they live in. The right to manage must be exercised through a limited company set up for that purpose. This type of company is called a ‘RTM Company'. There are special rules about setting up and running a RTM company in England and Wales which are not covered in this booklet. More information is available from the Office of the Deputy Prime Minister (tel. 020 7944 4400 or visit www.odpm.gov.uk)
A limited company would also be set up to own and manage the common parts of a development made up of separate units under ‘commonhold'. This type of company is called a ‘commonhold association'. There are special rules about setting up and running a commonhold association which are not covered in this booklet. More information is available from the Department for Constitutional Affairs (tel. 020 7210 8614 or visit www.dca.gov.uk) .
3 What does the limited company do?
Flat management companies typically manage common parts of the building. They may have other responsibilities. Your property probably has parts common to all the flat owners living in it: boundaries, roofs, halls, drives and gardens being typical examples. These require maintenance, insurance, lighting, etc. These costs are funded by the individual flat owners, who make periodic contributions into a pooled fund.
Many flat management companies choose to account for these transactions within the company. Chapter2 and chapter 3 give information on the financial accounting required.
If your company just pays a few bills, perhaps for repair or maintenance, then your advisor may say that these payments need not go through the company's books. Less formal arrangements, such as collecting the money through a residents association, may be satisfactory. The company could then continue to own the freehold (or head lease) of the property, but all its accounting transactions would be conducted elsewhere - the company would then be ' dormant '. Accounts would still have to be prepared, presented to members, and delivered to Companies House, but all that would mean is a simple 'nil' balance sheet that does not have to be audited.
A standard dormant company balance sheet, Form DCA, is available for companies that have been dormant since incorporation. For this, and more information about dormant company accounts, see our booklet, ' Dormant Companies '. |
4 What are the legal responsibilities of limited companies?
The prime purpose of limited companies is to limit the liabilities of entrepreneurs who use them for business purposes. In exchange for this limited liability , companies are required to make certain information about themselves available to the public. This information is filed at Companies House. The timing and presentation of the information is governed by law.
Flat management companies, although mostly formed for a different purpose, are governed by the same legislation - primarily, the Companies Act 1985. It does not allow flat management companies to be treated any differently to other companies.
The main requirements of this Act affecting flat management companies are that they file:
These documents and notifications must be filed at Companies House. Chapter 4 gives information about what you need to send to Companies House and when.
5 Who is responsible for managing the company?
Managing the business of the company is the responsibility of its officers . Legally, all companies must have:
- at least one director (unless the company is a plc); and
- a company secretary.
A sole director cannot also be the company secretary. There must be two officers.
The directors and secretary manage the company on behalf of the members. Among other things, they are responsible for holding meetings and ensuring that all the necessary returns, accounts and other documents reach Companies House by the due date.
6 What happens if documents are not delivered to Companies House?
When you are appointed as an officer, you take on some very important obligations. If you don't comply with them, there could be very serious consequences. The company officers could be prosecuted because they are personally responsible for ensuring that documents are delivered on time. Failing to do so is a criminal offence.
Your company could also be 'struck off the register' and dissolved. In this case all assets (such as the freehold of your property) would be 'bona vacantia'. This means they belong to the Crown. Your company would then not be able to sell its freehold and you may find that you couldn't sell your flat. So it is in your interests to ensure that the company complies with the law and stays on the register.
7 Do the members get a say in how the company is managed?
Generally a company must hold at least one meeting of its members every year. This is known as the annual general meeting. Other general meetings may also be held.
At meetings, the members elect and remove directors, pass various resolutions and consider the company's accounts. However, they cannot reject the accounts, as these are the responsibility of the directors and not the members. If the members were to refuse to adopt the accounts, this could be taken as a vote of no confidence in the directors.
If all the members agree that they do not want to hold an annual general meeting, they may pass a resolution saying so. A copy of the resolution must be sent to Companies House.
If the company decides not to hold annual general meetings, this may complicate the appointment of directors and make it difficult for members to discuss company affairs.
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Chapter 2
Statutory accounts
1 What accounts must the company keep?
All limited companies have a duty to keep accounting records and to prepare annual accounts. The Companies Act and other regulations specify the format in which the annual accounts must be prepared, the information that needs to be disclosed, and the rules affecting the valuation and treatment of the transactions and balances appearing in the accounts.
These rules are long and complicated. Residents will rarely have the time and patience to understand them. So our strong advice to flat management companies is to employ a professional accountant to prepare your annual statutory accounts. The cost would be shared among the leaseholders.
2 What if our company cannot afford a professional accountant?
Many small flat management companies do not want to employ an accountant and try to prepare their accounts themselves.
Many of these attempts go badly wrong. They are made without the slightest reference to, or knowledge of, the Companies Act; yet the directors happily sign a statement in the accounts acknowledging their responsibility for preparing them to meet the Act's requirements.
Directors should note that the Companies Act means they can be prosecuted if their accounts fail to comply with its requirements.
Many small flat management companies elect one of their members to keep a record of transactions, and many also expect him or her to prepare the statutory accounts. But preparing statutory accounts can be time consuming, stressful and frustrating. All the members should carefully consider whether it is fair to impose that burden, and whether the chosen person is confident, competent and happy with the responsibility.
Again, our advice is that you employ a professional accountant to prepare the statutory accounts.
3 Our treasurer does the book-keeping and accounts - what can we do to make their job easier?
Members can make the life of the book-keeper easier by ensuring that their contributions are paid into the company bank account on time.
Being able to write up the accounting records regularly, filing and cross-referencing paperwork, and completing details on cheque stubs will all make the book-keeping task easier. If you are the treasurer but inexperienced in this role, it is worth remembering that relying on your memory doesn't work very well - you should keep proper written records and update them regularly.
4 Does Companies House give technical advice on accounts?
No. We can give general guidance, but not advice on specific accounting issues. Firstly, giving technical advice is not a role that the Government has given us. Secondly, it is not practicable: your accounts are subject to complex legal requirements, and we do not know enough about your company to be confident that we are giving you proper advice.
Consult an accountant if you need this sort of advice.
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Chapter 3
Accounting records and statutory accounts - a worked example
This chapter uses a fictional example of a small flat management company, showing how it keeps its accounting records, and how these are used to produce the statutory accounts. You can judge from the example whether it is reasonably close to your own situation.
You can use this chapter to help keep your accounting records, and to understand the accounts that are prepared from them.
The example does not explain why records are kept this way, or the technical framework in which the accounts are prepared. To do so would require a longer and more complex guide. The accounts shown here for illustration are prepared under the Companies Act. For financial years beginning on or after 1 January 2005, companies may opt to prepare accounts under international accounting standards.
There are two aspects that perhaps need a preliminary explanation.
Freehold purchase
The freehold will be shown as an asset on the balance sheet, usually valued at its cost. There are various ways in which its purchase could have been funded, and various ways in which to show the funding in the accounts. The accounts need to reflect both the purchase and its funding.
In our example we have set up a reserve, simply called other reserve . Thus the members paid £2,500 into the company to buy the freehold - the bank balance was increased by this receipt, as was the other reserve. On buying the freehold, the bank balance was reduced by £2,500 and an asset was acquired for the same value.
Rainy day funds - a maintenance reserve
The accounts of some flat management companies may contain a maintenance reserve, although a different term may be used. This will arise when the members recognise the probability of a major expense in the near future, such as a roof replacement. Members of these companies decide to drip-feed contributions towards the cost over a number of years, thus softening the financial blow of funding the project in one year.
The contributions will be reflected as income, and the money placed in a bank account, in much the same way as other member contributions. But on the balance sheet a separate heading, maintenance reserve , will be used to record the cumulative value less expenditure on project(s) earmarked to this reserve.
As most small flat management companies do not use such a reserve, and for the purposes of clarity, the accounting treatment of this type of reserve has been omitted from the following example.
Recording the transactions
Melyn House is a large building split into five flats, each with a 99-year lease. On 1 April 1999 the leaseholders bought the freehold of the building.
The freehold was actually acquired by a company specifically set up to own the freehold. The company is named 'The Melyn House Management Company Limited', and all five of the leaseholders are shareholders. When the company was set up, each leaseholder agreed to take one share with a face value of £1. This nominal value would be paid to the company on receiving the share.
| Sometimes companies do not receive payment of the face value of the shares they issue. However, if they don't, it creates a special kind of debt owed to the company by the shareholders which must be shown on the statutory accounts each year under the heading, 'called-up share capital not paid'. It is the first item shown on the balance sheet and it represents an asset. For information on how to show unpaid capital in the accounts, refer to our booklet, ' Accounts & Accounting Reference Dates '. |
As well as holding the freehold, the company is responsible for maintaining the common parts of the property - the drive, garden, perimeter fencing, hall and stairs, the roof, and outbuildings. This maintenance is funded by each of the leaseholders paying £50 into the company each month.
The leaseholders are:
| Flat 1: |
Mr Baker |
| Flat 2: |
Mrs Butler |
| Flat 3: |
Mr & Mrs James |
| Flat 4: |
Mr Taylor |
| Flat 5: |
Mr & Mrs Smith |
The company has 3 officers:
- Mr Baker is a director and was elected chairman;
- Mrs Butler (who is an accountant) is a director and was elected treasurer; and
- Mr Smith is a director and also the company secretary.
Mr Smith sent notice of the appointment of the directors and company secretary on Forms 288a to Companies House.
Setting up a book-keeping system
Mrs Butler knows that the simplest way is the best way of accounting for the company's few transactions. These transactions will consist of just the monthly income from the leaseholders and the expenses of managing and maintaining the property. She had already set up a bank account in the company's name, and all the transactions will be reflected in this bank account.
She uses a cash book to record all the receipts and payments.
A ledger records all the amounts due from the leaseholders and all the amounts actually received.
The only other requirement is two files , one to keep all the invoices raised against the company, and one to keep the bank statements. File dividers in the invoice file split the invoices into two categories: paid and unpaid. This allows Mrs Butler to see, at a glance, what bills are outstanding at any time.
Recording the transactions (1) - the issued share capital
Each of the leaseholders bought one ordinary £1 share at a cost of £1 each. They are therefore shareholders. The £5 collected from issuing the shares has been used to open the bank account.
In the receipts section of the cash book, Mrs Butler enters £5 and describes it as 'contributions for purchase of shares'. Alongside, she enters the date - 1 April 1999.
Cash Book - Receipts
Date Description Total
amount Service
charges Other
| 1/4/99 |
Contributions for purchase of shares |
5 |
|
5 |
She then opens the ledger. There is a separate page for each flat in the house. There are two columns for entering the transactions, one is headed 'Due' and the other 'Received'.
For each flat she enters '£1' in the Due column, and '£1' in the Received column. This shows that each shareholder had paid for their ordinary share.
The ledger for each flat then looked like this:
Ledger: Flat 1 - Mr Baker
Date Description Amount
due Amount
received Running
total
| 1/4/99 |
One ordinary share of £1 |
1 |
1 |
|
Recording the transactions (2) - funding the purchase of the freehold
The cost of the freehold was £2,500 and this was payable on 1 April. Each of the shareholders contributed £500 to fund the purchase and the money had been banked that morning.
Again, for each flat in the ledger Mrs Butler enters '£500' in the Due column, and '£500' in the Received column. She describes these entries as 'contribution to purchase of freehold'.
Ledger: Flat 1 - Mr Baker
Date Description Amount
due Amount
received Running
total
| 1/4/99 |
One ordinary share of £1 |
1 |
1 |
|
| 1/4/99 |
Contribution to purchase of freehold |
500 |
500 |
|
She enters the £2,500 (£500 x 5) received in the receipts section of the cash book.
Cash Book - Receipts
Date Description Total
amount Service
charges Other
| 1/4/99 |
Contributions for purchase of shares |
5 |
|
5 |
| 1/4/99 |
Contributions for freehold purchase |
2,500 |
|
2,500 |
Recording the transactions (3) - buying the freehold
That same day she makes out a cheque to Lamberts, the seller of the freehold, for £2,500. Mrs Butler writes the number '1/99' on the invoice received from the seller and writes 'Paid, cheque number: 10001' on the invoice. She places the invoice in the 'Paid' section of the invoice file. In the payments section of the cash book she enters:
Cash Book - Payments
Date Supplier Cheque
no Invoice
no Total
amount Other
| 1/4/99 |
Lamberts - freehold |
10001 |
1/99 |
2,500 |
2,500 |
Laid out like this, the entry gives much valuable information that will be useful when drawing up the accounts at the end of the year. It also cross-refers to the cheque and the invoice.
Recording the transactions (4) - service charges due
The shareholders agreed to pay £50 a month to finance the maintenance and management of the common parts of the property. They agreed to pay this on the first day of each month. But at the first meeting they overlooked collecting this money.
Mrs Butler opens her ledger and against each flat makes a new entry:
Ledger: Flat 1 - Mr Baker
Date Description Amount
due Amount
received Running
total
| 1/4/99 |
One ordinary share of £1 |
1 |
1 |
|
| 1/4/99 |
Contribution to purchase of freehold |
500 |
500 |
|
| 1/4/99 |
Service charge - April 1999 |
50 |
|
50 |
She then sends reminders to all the shareholders, saying that if they all send their cheques by Friday she would only need to make one visit to the bank to deposit them.
Recording the transactions (5) - Service charges paid
The cheques duly arrive and are banked. In the ledger against each flat Mrs Butler adds another entry (in italics).
The ledger for each flat looks like this:
Ledger: Flat 1 - Mr Baker
Date Description Amount
due Amount
received Running
total
| 1/4/99 |
One ordinary share of £1 |
1 |
1 |
|
| 1/4/99 |
Contribution to purchase of freehold |
500 |
500 |
|
| 1/4/99 |
Service charge - April 1999 |
50 |
|
50 |
| 7/4/99 |
Service charge - April 1999 - paid |
|
50 |
|
This shows that all the flats have paid the service charges due, and nothing is outstanding. But as this transaction also involved paying money into the bank account, she has to update the cash book.
Cash Book - Receipts
Date Description Total
amount Service
charges Other
| 1/4/99 |
Contributions for purchase of shares |
5 |
|
5 |
| 1/4/99 |
Contributions for freehold purchase |
2,500 |
|
2,500 |
| 7/4/99 |
April service charges |
250 |
250 |
|
Recording transactions (6) - Additional service charges
In June an invoice arrives from the solicitor for buying the freehold and setting up the company. It is for £624. Mrs Butler is busy the day it arrives and places it in the unpaid section of the invoice file. Later, she realises they do not have enough funds to pay this bill. After she explains the position to the other shareholders, they each contribute an extra £200.
Mrs Butler enters these receipts into the ledger for each flat :
Ledger: Flat 1 - Mr Baker
Date Description Amount
due Amount
received Running
total
| 1/4/99 |
One ordinary share of £1 |
1 |
1 |
|
| 1/4/99 |
Contribution to purchase of freehold |
500 |
500 |
|
| 1/4/99 |
Service charge - April 1999 |
50 |
|
50 |
| 7/4/99 |
Service charge - April 1999 - paid |
|
50 |
|
| 1/5/99 |
Service charge - May 1999 |
50 |
|
50 |
| 10/5/99 |
Service charge - May 1999 - paid |
|
50 |
|
| 1/6/99 |
Service charge - June 1999 |
50 |
|
50 |
| 8/6/99 |
Service charge - June 1999 - paid |
|
50 |
|
| 15/6/99 |
Additional service charge - June 1999 |
200 |
|
200 |
| 22/6/99 |
Additional service charge
- June 1999 - paid |
|
200 |
|
But again this transaction also involves paying money into the bank account, and she has to update the cash book. The five cheques are paid in on 24 June. In the receipts section she adds a new entry:
Cash Book - Receipts
Date Description Total
amount Service
charges Other
| 1/4/99 |
Contributions for purchase of shares |
5 |
|
5 |
| 1/4/99 |
Contributions for freehold purchase |
2,500 |
|
2,500 |
| 7/4/99 |
April service charges |
250 |
250 |
|
| 6/5/99 |
May service charges |
250 |
250 |
|
| 4/6/99 |
June service charges |
250 |
250 |
|
| 24/6/99 |
Additional service charge - legal fees |
1,000 |
1,000 |
|
Recording transactions (7) - legal fees
The legal fees of £624 included VAT but, as with most flat management companies, Melyn House Management Company Limited cannot register for VAT and cannot, therefore, reclaim this from Customs and Excise. Such expenses are therefore simply recorded at their gross (VAT inclusive) cost.
Mrs Butler transfers the invoice from the unpaid to the paid section of the invoice file and writes on it 'paid, cheque number 10002'. She also writes the number '2/99' on the invoice.
The entry in the payments section of the cash book is:
Cash Book - Payments
Date Supplier Cheque
no Invoice
no Total
amount Other
| 1/4/99 |
Lamberts - freehold |
10001 |
1/99 |
2,500 |
2,500 |
| 26/6/99 |
Solicitors |
10002 |
2/99 |
624 |
624 |
Recording transactions (8) - gardening
A professional gardener maintains the garden of Melyn House. He charges a flat rate of £100 a month, but quotes extra for any big, non-routine jobs.
Mrs Butler records these payments in the cash book as they arise throughout the year, and files the invoices in the 'paid' and 'unpaid' sections of her invoice file.
Recording transactions (9) - electricity
Similarly, quarterly electricity bills are paid in July (£89), October (£93), January (£119) and April (£134).
Mrs Butler records these payments in the cash book as they arise throughout the year, and files the invoices in the 'paid' and 'unpaid' sections of her invoice file.
Recording transactions (10) - insurance
The previous owner had insured the building up to the year ended 31 July 1999. The company is now invoiced for £824 for insurance covering the year from 1 August 1999 to 31 July 2000. This prompts Mrs Butler to seek quotes from other insurance companies and the most competitive is for £585 from Bloggs Insurance. The shareholders agree to insure the building with this company at their July meeting.
Mrs Butler enters the payment in the payments section of the cash book:
Cash Book - Payments
Date Supplier Cheque
no Invoice
no Total
amount Other Gardening Electricity Insurance
| 1/4/99 |
Lamberts - freehold |
10001 |
1/99 |
2,500 |
2,500 |
|
|
|
| 26/6/99 |
Solicitors |
10002 |
2/99 |
624 |
624 |
|
|
|
| 26/6/99 |
Gardening - May |
10003 |
3/99 |
100 |
|
100 |
|
|
| 26/7/99 |
Electricity to 14th July |
10004 |
4/99 |
89 |
|
|
89 |
|
| 26/7/99 |
Gardening - June |
10005 |
5/99 |
100 |
|
100 |
|
|
| 29/7/99 |
Bloggs Insurance |
10006 |
6/99 |
585 |
|
|
|
585 |
She writes 'Invoice 6/99, paid 29/7/99, chq 10006' on the invoice. Recording transactions (11) - unpaid service charges
In January 2000, Mr Taylor's company sends him to work abroad. Mr Taylor had very little notice and forgot to make arrangements to pay his service charges while he was away. He did not return until June, when he paid the outstanding service charges.
From January to June Mrs Butler simply records the service charges due from Mr Taylor in the ledger.
Recording transactions (12) - Routine maintenance
In August the shareholders agree that a boundary fence needs some maintenance work. This costs £411. This is entered in the payments section of the cash book:
Cash Book - Payments
Date Supplier Cheque
no Invoice
no Total
amount Gardening Electricity Insurance Maintenance
| 1/4/99 |
Lamberts - freehold |
10001 |
1/99 |
2,500 |
|
|
|
|
| 26/6/99 |
Solicitors |
10002 |
2/99 |
624 |
|
|
|
|
| 26/6/99 |
Gardening - May |
10003 |
3/99 |
100 |
100 |
|
|
|
| 26/7/99 |
Electricity to 14th July |
10004 |
4/99 |
89 |
|
89 |
|
|
| 26/7/99 |
Gardening - June |
10005 |
5/99 |
100 |
100 |
|
|
|
| 29/7/99 |
Bloggs Insurance |
10006 |
6/99 |
585 |
|
|
585 |
|
| 31/7/99 |
Gardening - July |
10007 |
7/99 |
100 |
|
|
|
|
| 8/8/99 |
Gardening - tree surgery |
10008 |
8/99 |
280 |
|
|
|
|
| 30/8/99 |
Gardening - August |
10009 |
9/99 |
100 |
|
|
|
|
| 2/9/99 |
Johnson Fences |
10010 |
10/99 |
411 |
|
|
|
411 |
Mrs Butler writes 'Invoice 10/99, paid 2/9/99, chq 10010' on the invoice.
Recording transactions (13) - Unpaid invoices
Towards the end of March 2000 a water pipe bursts, damaging part of the wooden floor in the hall. The pipe is repaired and some of the floor replaced. Mrs Butler receives an invoice for £375 on 28 March. She places it in the 'unpaid' section of her file and doesn't pay it until 21 April - after the company's first year-end.
This is the end of the first financial year of the company. Mrs Butler has comprehensive accounting records showing all the transactions throughout the year. Copies of her records are shown below.
Because the company had been set up in March 1999, shortly before it acquired the freehold, the company's accounting reference date at Companies House is 31 March . See Chapter 4 for more information on accounting reference dates. Accounts now need to be prepared for the year-end 31/3/2000.
The accounting records
Cash Book - Receipts
Date Description Total
amount Service
charges Other Ref
| 1999 |
|
| 1/4/99 |
Contributions for purchase of shares |
5 |
|
5 |
1 |
| 1/4/99 |
Contributions for freehold purchase |
2,500 |
|
2,500 |
2 |
| 7/4/99 |
April service charges |
250 |
250 |
|
5 |
| 6/5/99 |
May service charge |
250 |
250 |
|
5 |
| 4/6/99 |
June service charge |
250 |
250 |
|
5 |
| 24/6/99 |
Additional service charge - legal fees |
1,000 |
1,000 |
|
6 |
| 2/7/99 |
July service charge |
250 |
250 |
|
5 |
| 1/8/99 |
August service charge |
250 |
250 |
|
5 |
| 2/9/99 |
September service charge |
250 |
250 |
|
5 |
| 8/10/99 |
October service charge |
250 |
250 |
|
5 |
| 5/11/99 |
November service charge |
250 |
250 |
|
5 |
| 5/12/99 |
December service charge |
250 |
250 |
|
5 |
| 2000 |
|
| 14/1/00 |
January service charge |
200 |
200 |
|
5,11 |
| 8/2/00 |
February service charge |
200 |
200 |
|
5 , 11 |
| 8/3/99 |
March service charge |
200 |
200 |
|
5 , 11 |
 |
|
|
6,355 |
3,850 |
2,505 |
|
Cash book - Payments
Date Supplier Cheque
no. Invoice no. Total amount Other Gardening Electricity Insurance Maintenance Ref
1999
| 1/4/99 |
Lamberts freehold |
10001 |
1/99 |
2,500 |
2,500 |
|
|
|
|
3 |
| 26/6/99 |
Solicitors |
10002 |
2/99 |
624 |
624 |
|
|
|
|
7 |
| 26/6/99 |
Gardening - May |
10003 |
3/99 |
100 |
|
100 |
|
|
|
8 |
| 26/7/99 |
Electricity to 14 July |
10004 |
4/99 |
89 |
|
|
89 |
|
|
9 |
| 26/7/99 |
Gardening - June |
10005 |
5/99 |
100 |
|
100 |
|
|
|
8 |
| 29/7/99 |
Bloggs Insurance |
10006 |
6/99 |
585 |
|
|
|
585 |
|
10 |
| 31/7/99 |
Gardening - July |
10007 |
7/99 |
100 |
|
100 |
|
|
|
8 |
| 8/8/99 |
Gardening - tree surgery |
10008 |
8/99 |
280 |
|
280 |
|
|
|
8 |
| 30/8/99 |
Gardening - August |
10009 |
9/99 |
100 |
|
100 |
|
|
|
8 |
| 2/9/99 |
Fence repairs |
10010 |
10/99 |
411 |
|
|
|
|
411 |
12 |
| 30/9/99 |
Gardening - Sept |
10011 |
11/99 |
100 |
|
100 |
|
|
|
8 |
| 23/10/99 |
Electricity to 14 Oct |
10012 |
12/99 |
93 |
|
|
93 |
|
|
9 |
| 31/10/99 |
Gardening - October |
10013 |
13/99 |
100 |
|
100 |
|
|
8 |
|
| 30/11/99 |
Gardening - Nov |
10014 |
14/99 |
100 |
|
100 |
|
|
8 |
|
| 28/12/99 |
Gardening - Dec |
10015 |
15/99 |
100 |
|
100 |
|
|
8 |
|
2000
| 23/1/00 |
Electricity to 13 Jan |
10016 |
16/99 |
119 |
|
|
119 |
|
|
9 |
| 31/1/00 |
Gardening - January |
10017 |
17/99 |
100 |
|
100 |
|
|
|
8 |
| 26/2/00 |
Gardening - February |
10018 |
18/99 |
100 |
|
100 |
|
|
|
8 |
| 28/3/00 |
Gardening, incl. tidy up |
10019 |
19/99 |
220 |
|
220 |
|
|
|
9 |
|
|
|
|
|
5,921 |
3,124 |
1,500 |
301 |
585 |
4110 |
|
Ledger: Flat 1 - Mr Baker
Date Description Amount
Owing Amount
Paid Running
total Ref
| 1999 |
| 1/4/99 |
One ordinary share of £1 |
1.00 |
1.00 |
- |
1 |
| 1/4/99 |
Contribution to purchase of freehold |
500 |
500 |
- |
2 |
| 1/4/99 |
Service charge - April 1999 |
50 |
|
50 |
4 |
| 7/4/99 |
Service charge - April 1999 - paid |
|
50 |
- |
5 |
| 1/5/99 |
Service charge - May 1999 |
50 |
|
50 |
4 |
| 105/99 |
Service charge - May 1999 - paid |
|
50 |
- |
5 |
| 1/6/99 |
Service charge - June 1999 |
50 |
|
50 |
4 |
| 6/6/99 |
Service charge - June 1999 - paid |
|
50 |
- |
5 |
| 15/6/99 |
Additional service charge - June 1999 |
200 |
|
200 |
6 |
| 22/6/99 |
Additional s/c - June 1999 - paid |
|
200 |
- |
6 |
| 1/7/99l |
Service charge - July 1999 |
50 |
|
50 |
4 |
| 6/7/99l |
Service charge - July 1999 - paid |
|
50 |
- |
5 |
| 1/8/99 |
Service charge - August 1999 |
50 |
|
50 |
4 |
| 4/8/99 |
Service charge - August 1999 - paid |
|
50 |
- |
5 |
| 1/9/99 |
Service charge - September 1999 |
50 |
|
50 |
4 |
| 1/9/99 |
Service charge - September 1999 - paid |
|
50 |
- |
5 |
| 1/10/99 |
Service charge - October 1999 |
50 |
|
50 |
4 |
| 3/10/99 |
Service charge - October 1999 - paid |
|
50 |
- |
5 |
| 1/11/99 |
Service charge - November 1999 |
50 |
|
- |
4 |
| 5/11/99 |
Service charge - November 1999 - paid |
|
50 |
- |
5 |
| 1/12/99 |
Service charge - December 1999 |
50 |
|
50 |
4 |
| 3/12/99 |
Service charge - December 1999 - paid |
|
50 |
- |
5 |
| 2000 |
| 1/1/00 |
Service charge - January 2000 |
50 |
|
50 |
4 |
| 6/1/00 |
Service charge - January 2000 - paid |
|
50 |
- |
5 |
| 1/2/00 |
Service charge - February 2000 |
50 |
|
50 |
4 |
| 11/2/00 |
Service charge - February 2000 - paid |
|
50 |
- |
5 |
| 1/3/00 |
Service charge - March 2000 |
50 |
|
50 |
4 |
| 13/3/00 |
Service charge - March 2000 - paid |
|
50 |
- |
5 |
|
|
Amount owing at 31 March 2000 |
|
|
- |
|
Ledger: Flat 2 - Mrs Butler
Date Description Amount
Owing Amount Paid Running total Ref
| 1999 |
| 1/4/99 |
One ordinary share of £1 |
1 |
1 |
- |
1 |
| 1/4/99 |
Contribution to purchase of freehold |
500 |
500 |
- |
2 |
| 1/4/99 |
Service charge - April 1999 |
50 |
|
50 |
4 |
| 7/4/99 |
Service charge - April 1999 - paid |
|
50 |
- |
5 |
| 1/5/99 |
Service charge - May 1999 |
50 |
|
50 |
4 |
| 105/99 |
Service charge - May 1999 - paid |
|
50 |
- |
5 |
| 1/6/99 |
Service charge - June 1999 |
50 |
|
50 |
4 |
| 6/6/99 |
Service charge - June 1999 - paid |
|
50 |
- |
5 |
| 15/6/99 |
Additional service charge - June 1999 |
200 |
|
200 |
6 |
| 22/6/99 |
Additional s/c - June 1999 - paid |
|
200 |
- |
6 |
| 1/7/99l |
Service charge - July 1999 |
50 |
|
50 |
4 |
| 6/7/99l |
Service charge - July 1999 - paid |
|
50 |
- |
5 |
| 1/8/99 |
Service charge - August 1999 |
50 |
|
50 |
4 |
| 4/8/99 |
Service charge - August 1999 - paid |
|
50 |
- |
5 |
| 1/9/99 |
Service charge - September 1999 |
50 |
|
50 |
4 |
| 1/9/99 |
Service charge - September 1999 - paid |
|
50 |
- |
5 |
| 1/10/99 |
Service charge - October 1999 |
50 |
|
50 |
4 |
| 3/10/99 |
Service charge - October 1999 - paid |
|
50 |
- |
5 |
| 1/11/99 |
Service charge - November 1999 |
50 |
|
- |
4 |
| 5/11/99 |
Service charge - November 1999 - paid |
|
50 |
- |
5 |
| 1/12/99 |
Service charge - December 1999 |
50 |
|
50 |
4 |
| 3/12/99 |
Service charge - December 1999 - paid |
|
50 |
- |
5 |
| 2000 |
| 1/1/00 |
Service charge - January 2000 |
50 |
|
50 |
4 |
| 6/1/00 |
Service charge - January 2000 - paid |
|
50 |
- |
5 |
| 1/2/00 |
Service charge - February 2000 |
50 |
|
50 |
4 |
| 11/2/00 |
Service charge - February 2000 - paid |
|
50 |
- |
5 |
| 1/3/00 |
Service charge - March 2000 |
50 |
|
50 |
4 |
| 13/3/00 |
Service charge - March 2000 - paid |
|
50 |
- |
5 |
|
|
Amount owing at 31 March 2000 |
|
|
- |
|
Ledger: Flat 3 - Mr & Mrs James
Date Description Amount
Owing Amount
Paid Running
total Ref
| 1999 |
| 1/4/99 |
One ordinary share of £1 |
1 |
1 |
- |
1 |
| 1/4/99 |
Contribution to purchase of freehold |
500 |
500 |
- |
2 |
| 1/4/99 |
Service charge - April 1999 |
50 |
|
50 |
4 |
| 7/4/99 |
Service charge - April 1999 - paid |
|
50 |
- |
5 |
| 1/5/99 |
Service charge - May 1999 |
50 |
|
50 |
4 |
| 105/99 |
Service charge - May 1999 - paid |
|
50 |
- |
5 |
| 1/6/99 |
Service charge - June 1999 |
50 |
|
50 |
4 |
| 6/6/99 |
Service charge - June 1999 - paid |
|
50 |
- |
5 |
| 15/6/99 |
Additional service charge - June 1999 |
200 |
|
200 |
6 |
| 22/6/99 |
Additional s/c - June 1999 - paid |
|
200 |
- |
6 |
| 1/7/99l |
Service charge - July 1999 |
50 |
|
50 |
4 |
| 6/7/99l |
Service charge - July 1999 - paid |
|
50 |
- |
5 |
| 1/8/99 |
Service charge - August 1999 |
50 |
|
50 |
4 |
| 4/8/99 |
Service charge - August 1999 - paid |
|
50 |
- |
5 |
| 1/9/99 |
Service charge - September 1999 |
50 |
|
50 |
4 |
| 1/9/99 |
Service charge - September 1999 - paid |
|
50 |
- |
5 |
| 1/10/99 |
Service charge - October 1999 |
50 |
|
50 |
4 |
| 3/10/99 |
Service charge - October 1999 - paid |
|
50 |
- |
5 |
| 1/11/99 |
Service charge - November 1999 |
50 |
|
- |
4 |
| 5/11/99 |
Service charge - November 1999 - paid |
|
50 |
- |
5 |
| 1/12/99 |
Service charge - December 1999 |
50 |
|
50 |
4 |
| 3/12/99 |
Service charge - December 1999 - paid |
|
50 |
- |
5 |
| 2000 |
| 1/1/00 |
Service charge - January 2000 |
50 |
|
50 |
4 |
| 6/1/00 |
Service charge - January 2000 - paid |
|
50 |
- |
5 |
| 1/2/00 |
Service charge - February 2000 |
50 |
|
50 |
4 |
| 11/2/00 |
Service charge - February 2000 - paid |
|
50 |
- |
5 |
| 1/3/00 |
Service charge - March 2000 |
50 |
|
50 |
4 |
| 13/3/00 |
Service charge - March 2000 - paid |
|
50 |
- |
5 |
|
|
Amount owing at 31 March 2000 |
|
|
- |
|
Ledger: Flat 4 - Mr Taylor
Date Description Amount
Owing Amount
Paid Running
total Ref
1999
| 1/4/99 |
One ordinary share of £1 |
1 |
1 |
- |
1 |
| 1/4/99 |
Contribution to purchase of freehold |
500 |
500 |
- |
2 |
| 1/4/99 |
Service charge - April 1999 |
50 |
|
50 |
4 |
| 7/4/99 |
Service charge - April 1999 - paid |
|
50 |
- |
5 |
| 1/5/99 |
Service charge - May 1999 |
50 |
|
50 |
4 |
| 105/99 |
Service charge - May 1999 - paid |
|
50 |
- |
5 |
| 1/6/99 |
Service charge - June 1999 |
50 |
|
50 |
4 |
| 6/6/99 |
Service charge - June 1999 - paid |
|
50 |
- |
5 |
| 15/6/99 |
Additional service charge - June 1999 |
200 |
|
200 |
6 |
| 22/6/99 |
Additional s/c - June 1999 - paid |
|
200 |
- |
6 |
| 1/7/99l |
Service charge - July 1999 |
50 |
|
50 |
4 |
| 6/7/99l |
Service charge - July 1999 - paid |
|
50 |
- |
5 |
| 1/8/99 |
Service charge - August 1999 |
50 |
|
50 |
4 |
| 4/8/99 |
Service charge - August 1999 - paid |
|
50 |
- |
5 |
| 1/9/99 |
Service charge - September 1999 |
50 |
|
50 |
4 |
| 1/9/99 |
Service charge - September 1999 - paid |
|
50 |
- |
5 |
| 1/10/99 |
Service charge - October 1999 |
50 |
|
50 |
4 |
| 3/10/99 |
Service charge - October 1999 - paid |
|
50 |
- |
5 |
| 1/11/99 |
Service charge - November 1999 |
50 |
|
- |
4 |
| 5/11/99 |
Service charge - November 1999 - paid |
|
50 |
- |
5 |
| 1/12/99 |
Service charge - December 1999 |
50 |
|
50 |
4 |
| 3/12/99 |
Service charge - December 1999 - paid |
|
50 |
- |
5 |
2000
| 1/1/00 |
Service charge - January 2000 |
50 |
|
50 |
4 |
| 1/2/00 |
Service charge - February 2000 |
50 |
|
100 |
4 |
| 1/3/00 |
Service charge - March 2000 |
50 |
|
150 |
4 |
|
|
Amount owing at 31 March 2000 |
|
|
150 |
|
Ledger: Flat 5 - Mr & Mrs Smith
Date Description Amount
Owing Amount
Paid Running
total Ref
| 1999 |
| 1/4/99 |
One ordinary share of £1 |
1 |
1 |
- |
1 |
| 1/4/99 |
Contribution to purchase of freehold |
500 |
500 |
- |
2 |
| 1/4/99 |
Service charge - April 1999 |
50 |
|
50 |
4 |
| 7/4/99 |
Service charge - April 1999 - paid |
|
500 |
- |
5 |
| 1/5/99 |
Service charge - May 1999 |
50 |
|
50 |
4 |
| 105/99 |
Service charge - May 1999 - paid |
|
50 |
- |
5 |
| 1/6/99 |
Service charge - June 1999 |
50 |
|
50 |
4 |
| 6/6/99 |
Service charge - June 1999 - paid |
|
50 |
- |
5 |
| 15/6/99 |
Additional service charge - June 1999 |
200 |
|
200 |
6 |
| 22/6/99 |
Additional s/c - June 1999 - paid |
|
200 |
- |
6 |
| 1/7/99l |
Service charge - July 1999 |
50 |
|
50 |
4 |
| 6/7/99l |
Service charge - July 1999 - paid |
|
50 |
- |
5 |
| 1/8/99 |
Service charge - August 1999 |
50 |
|
50 |
4 |
| 4/8/99 |
Service charge - August 1999 - paid |
|
50 |
- |
5 |
| 1/9/99 |
Service charge - September 1999 |
50 |
|
50 |
4 |
| 1/9/99 |
Service charge - September 1999 - paid |
|
50 |
- |
5 |
| 1/10/99 |
Service charge - October 1999 |
50 |
|
50 |
4 |
| 3/10/99 |
Service charge - October 1999 - paid |
|
50 |
- |
5 |
| 1/11/99 |
Service charge - November 1999 |
50 |
|
- |
4 |
| 5/11/99 |
Service charge - November 1999 - paid |
|
50 |
- |
5 |
| 1/12/99 |
Service charge - December 1999 |
50 |
|
50 |
4 |
| 3/12/99 |
Service charge - December 1999 - paid |
|
50 |
- |
5 |
| 2000 |
| 1/1/00 |
Service charge - January 2000 |
50 |
|
50 |
4 |
| 6/1/00 |
Service charge - January 2000 - paid |
|
50 |
- |
5 |
| 1/2/00 |
Service charge - February 2000 |
50 |
|
50 |
4 |
| 11/2/00 |
Service charge - February 2000 - paid |
|
50 |
- |
5 |
| 1/3/00 |
Service charge - March 2000 |
50 |
|
50 |
4 |
| 13/3/00 |
Service charge - March 2000 - paid |
|
50 |
- |
5 |
|
|
Amount owing at 31 March 2000 |
|
|
- |
|
Preparing the trial balance - the first year
The trial balance (1) - the cash book transactions
The first task in preparing the company's annual accounts is to summarise all the transactions on one report - the trial balance. See below.
Trial Balance Year ended 31 March 2000
|
Cash
book Unpaid
contributions Unpaid
invoices Prepaid
expenses Accrued
expenses Income &
expenditure Balance
sheet
|
| Income |
|
|
|
|
|
|
|
|
| Service charge |
3,850 |
150 |
|
|
|
4,000 |
|
|
|
|
|
|
|
|
4,000 |
|
|
| Expenditure |
|
|
|
|
|
|
|
|
| Gardening |
1,500 |
|
|
|
|
1,500 |
|
|
| Electricity |
301 |
|
|
|
120 |
421 |
|
|
| Maintenance |
411 |
|
375 |
|
|
786 |
|
|
| Insurance |
585 |
|
|
(195) |
|
390 |
|
|
| Legal fees |
624 |
|
|
|
|
624 |
|
|
|
|
|
|
|
|
3,721 |
|
|
| Assets |
|
|
|
|
|
|
|
|
| Freehold |
2,500 |
|
|
|
|
|
2,500 |
|
| Bank balance |
434 |
|
|
|
|
|
434 |
|
| Contributions due |
|
150 |
|
|
|
|
150 |
|
| Prepayments |
|
|
|
195 |
|
|
195 |
|
|
|
|
|
|
|
|
3,279 |
A |
| Liabilities |
|
|
|
|
|
|
|
|
| Unpaid invoices |
|
|
375 |
|
|
|
375 |
|
| Accruals |
|
|
|
|
120 |
|
120 |
|
|
|
|
|
|
|
|
495 |
B |
|
|
|
|
|
|
|
|
|
| Assets less liabilities |
|
|
|
|
|
|
2,784 |
C = A - B |
|
|
|
|
|
|
|
|
|
| Reserves |
|
|
|
|
|
|
|
|
| Share capital |
5 |
|
|
|
|
|
5 |
|
| Other reserve |
2,500 |
|
|
|
|
|
2,500 |
|
| Surplus income |
|
|
|
|
Surplus |
279 |
279 |
|
|
|
|
|
|
|
|
2,784 |
D = C |
| The figures marked C and D must always be the same value |
Mrs Butler had already added up the total income and expenditure recorded in the cash book - and simply entered these figures to the 'Cash Book' column on the trial balance. Her cash book recorded total receipts of £6,355 and total payments of £5,921, giving a bank balance of £434 - this is entered onto the trial balance as an asset.
The freehold that the company had bought for £2,500 is also shown as an asset. Mrs Butler decided to show the £2,500 contributed by the shareholders to buy the freehold as a separate reserve.
Finally, Mrs Butler checks that she hasn't made any careless errors in allocating these totals to the wrong place or writing down a wrong number. She knows that the value of the categories marked ' C ' on the trial balance must equal the value of the categories marked ' D '. Any imbalance will indicate an error somewhere.
The trial balance (2) - unpaid contributions
The next step is to determine the value of any unpaid contributions that were due as at 31 March 2000. Mrs Butler takes out the ledger and notes that everybody has paid what was due, except for Mr Taylor who owed £150 in service charges. This she enters to an 'Unpaid contributions' column as service charge income on the trial balance.
The total - £150 - is also entered as contributions due, under 'Assets' on the trial balance. This shows that Mr Taylor owes the company this money.
The trial balance (3) - unpaid invoices
Next, Mrs Butler reviews her invoice file for any invoices that were paid after the year-end - but which related to work undertaken before that date. There is only one, the invoice for £375 for repairing water damage in the hall. This is allocated to the maintenance expenditure, and a corresponding amount under 'Liabilities' as an unpaid invoice.
The trial balance (4) - accruals and prepayments
Finally, Mrs Butler reviews the invoices to see whether anything invoiced during the year related to costs falling after the year-end (prepaid expenses), and for invoices received after the year-end relating to costs incurred during the year (accrued expenses).
The insurance invoice covered the year ending on 31 July 2000, 4 months after the year-end. Of the total annual cost of £585, only 8/12 related to the year ended 31 March 2000. Mrs Butler therefore deducts £195 from the cost of £585, equal to 4/12 of the total, and enters this in the 'Prepaid expenses' column against insurance and brackets it to show that it has to be deducted from the total expenses for the year. She also enters this amount as a prepayment under 'Assets'.
She also sees that they had paid £134 for electricity in April, after the year-end, but that much of this was for electricity used before March 31. She estimates that about £120 of the total was probably used before March 31 and adds that total to the electricity costs for the year in the Accrued expenses column. She also enters £120 against the 'Accruals' heading under 'Liabilities' on the trial balance, reflecting that the company had run up (or accrued) these costs at 31 March, although it had not then been invoiced.
The trial balance (5) - adding it all up
Finally, the entries against each heading need to be totalled.
For example, the service charge income was equal to the contributions due from the five flats of £50 each month: 5 x £50 x 12 = £3,000, plus the additional service charge of £200 each (5 x £200), another £1,000.
Mrs Butler's cash book shows that £3,850 had been paid in the year and the remaining £150 is due from Mr Taylor on his return from abroad.
Maintenance expenditure of £786 was made up of the £411 paid in the year (in the cash book) and £375 invoiced after the year for work done in March.
Preparing the statutory accounts - the first year.
The format of the company's statutory accounts is governed by specific and complex rules in the Companies Act 1985 and accounting standards.
The complexity of these regulations means that directors of most small companies employ a professional accountant to draw up their statutory accounts. These accounts must be given to the shareholders and filed at Companies House within strict time limits. If the accounts are not filed on time, the company will get a ‘late filing penalty'. See Chapter 4 for more information.
Fortunately, as she is an accountant, Mrs Butler knows how to produce the company's statutory accounts.
Mrs Butler checked the criteria for claiming audit exemption. Because the company is so small, there is no legal requirement to have an audit and the members all agreed that an audit would be unnecessary. The statutory accounts will therefore consist of:
- a directors' report;
- an income and expenditure account;
- a balance sheet;
- an audit exemption statement; and
- notes to the accounts.
| Section 42 of the Landlord and Tenant Act 1987
This imposes certain requirements on money collected as service charges; it may be relevant to certain flat management companies.
Section 42 requires service charge monies to be held in trust and to be held either as a single fund or in two or more separate funds. Where section 42 applies to money held by the flat management company, it may be appropriate to add an extra note to the statutory accounts saying:
“ Unspent amounts of service charges held in the company's bank account are held by the company on trust in accordance with section 42 of the Landlord and Tenant Act 1987".
If you are unsure whether section 42 applies or, if it does apply, of the implications for your company, you should seek independent advice. |
The following pages show how the company's statutory accounts look for its first year:
Melyn House Management Company Limited
Company Number: 0000001
Statutory accounts for the year ended 31 March 2000
Directors' report
The directors present their report for the year ended 31 March 2000.
Principal activity
The principal activity of the company is that of ownership of the freehold of Melyn House. The company is also used to administer and maintain the common parts of the property.
Directors
The directors of the company, and their beneficial interests in the ordinary shares of the company were:
|
1 April 1999 |
31 March 2000 |
| S Baker |
1 |
1 |
| U Butler |
1 |
1 |
| S Smith |
1 |
1 |
This report has been prepared in accordance with the special provisions of Part VII of the Companies Act 1985 relating to small companies.
Signed on behalf of the board of directors, who approved this report on 23 August 2000.
.............
S Smith, secretary |
Melyn House Management Company Limited
Income and expenditure account for the year ended 31 March 2000
|
2000
£ |
| Income |
|
| Service charge contributions |
4,000 |
|
|
| Expenditure |
|
| Gardening |
1,500 |
| Electricity |
421 |
| Maintenance |
786 |
| Insurance |
390 |
| Legal fees |
624 |
|
|
3,721 |
|
|
| Retained surplus / (deficit) |
279 |
|
=== |
| |
0 item(s) £0.00
