On forming a Right To Manage Company one director will have to take responsibility for the financial affairs of the company. For directors from a non-financial background with limited accounting experience this can be a daunting task. Here are five practical tips to help the director in this situation.
1. Invest in accounting software
Except for the most basic and simplest of RTM companies it will always make sense to use an accounting software package to record and maintain the accounting transactions. There are several packages available on the market that can fulfil this role and for a small investment it should be possible to acquire a user friendly software package that is easy to pick up and use. Accounting software will be especially useful for the control of service charge debtors as manual or bespoke systems created in Excel are not always reliable for this purpose.
2. Put financial controls in place from day one
It is important to put some basic financial controls in place from the outset. As a minimum it should be ensured that,
- The bank accounts are reconciled to the cashbook at least monthly
- There are two cheque signatories or dual authorisation for on line banking payments
- A system for authorising expenditure is introduced that does not rely on one person
- Service charge debtors are reviewed monthly
All of these duties require discipline and commitment to keep on top of the workload. Discipline is the key and it is important to remember that the time to complete a bookkeeping task will increase disproportionately if the task is not performed on a regular basis.
3. Be aware of the tax implications of other income
Any income (excluding service charges) into the company is likely to create a Corporation Tax liability. Income received from renting out car park spaces or income from the issue of laundry tokens are examples of taxable income. Income of this nature will have to be properly accounted for and declared on the Corporation Tax return for the company. The tax will be payable nine months after the financial year end. It is easy to view this type of income as incidental income that does not need to be declared. However, this is incorrect and failing to declare the income to HMRC can be costly and result in painful interest charges and penalties.
4. Watch out for payments to lessees for services
It can be common for a lessee to provide services to the block such as gardening or cleaning and for the company to pay them for providing these services. This can be a dangerous trap. If the lessee is not already trading as a cleaner or gardener then payments of this nature can be construed by HMRC as payments that should be made under PAYE. The company has an obligation to operate PAYE and failure to do so can result in stiff penalties. A PAYE scheme for one or two employees can also be costly to administer and in addition to this there is a raft of employee legislation that will need to be considered once payments come within PAYE.
5. Get the year end right
As well as preparing statutory accounts to file at Companies House the directors will also need to ensure that service charge accounts are prepared on an annual basis in accordance with the lease. The lease will normally state the year end for the service charge accounts and it is advisable that the year end for the RTM is changed so that it agrees with the year end for the service charge accounts. This will make it easier to separate statutory transactions from service charge transactions and to reconcile the two different sets of accounts.
It is also a good idea to have a diary of key dates detailed and made available to all the directors. The key financial dates would include the year end for the service charge account, the filing date for statutory accounts, the dates for issuing service charge demands and the date for filing the Confirmation Statement at Companies House.
At the early stages of setting up the Company it may be possible for RTM directors to get by without the need for help of accounting professional. However, it is unlikely that this will apply in the long run. The best advice for an RTM director responsible for the financial management of the company is to look for a suitable accounting partner at an early stage.
Ideally, this should be an experienced service charge accountant with knowledge of RTM companies and service charge reporting. Failure to do so may result in higher than expected costs at some stage in the future.
For advice, information or simply a quick chat about your service charge needs, please get in touch using our contact form