What is the difference between Service Charge and Company Accounts?

by | May 13, 2021 | News

Service charge accounts are different from company accounts. However, it can be difficult to differentiate between the costs associated with the Service Charge and the property’s management company, however, these must be kept separate and we are here to help you.

What is a Service Charge?

As a leaseholder, you are bound under the terms of your lease to pay for service charges which are accumulated costs associated with providing communal or shared services to a building. These costs must be reasonable and are only permitted as authorised by the lease. The service charge money is not owned by the management company as it is acting as trustee overseeing the management of the property.

Service Charge Expenditure includes:

  • Communal cleaning
  • Grounds maintenance
  • General repairs
  • Fire alarm maintenance
  • Buildings insurance
  • Utility costs
  • Management fees
  • Accountancy and professional fees

What is a Management Company?

Management companies are set up for the sole purpose of managing the service charge for the property. The directors of the company are required to fulfil the obligations of the lease and ensure that contractual duties are performed on behalf of the leaseholders.  Directors can also be leaseholders. Service charge money should not be accounted for as an asset in the company accounts.

The management company’s funds can be derived from share capital and, where it holds the property’s freehold, ground rent or the proceeds of lease extensions.

Management Company Expenditure includes:

  • Accounting fees for preparing the company accounts and filing tax returns if required
  • Companies House filing fees
  • Directors’ and Officers’ liability insurance

Preparing Annual Accounts

Service Charge

The lease will set out the requirements for an annual statement for the service charge. It may require the accounts to be certified or audited professionally by an independent accountant. This should then be issued to all leaseholders.

Best practice for service charge accounting is set out in guidance issued by ICAEW and ARMA.

Management Company

Companies are required by law to submit annual financial statements to Companies House. There may be a requirement for an audit based on the company’s Articles of Association; the directors of the company must approve these accounts before filing.

Top tips for tax issues:

Any interest earned from service charges monies is taxable as trust income and is subject to tax at the income tax rate and a Self-Assessment Trusts & Estates tax return must be filed for each year ended April 5th. Interest earned on monies held by the management company plus any ground rent income is taxable and a corporation tax return must be filed for the company’s accounting year-end within 9 months of the year-end.  Net income is taxable at the applicable rate of corporation tax.

If you would like assistance with your accounts, or any other accounting aspect of your property management business, do take a look at our services page. Alternatively, we would be happy to have a no-obligation discussion, simply contact John Dwyer, Managing Partner, on 01803 321221 or email jdwyer@mjpaccountants.co.uk.


Latest News

Case Study – above and beyond service charge accounts

Case Study – above and beyond service charge accounts

MJP Accountants work with a variety of property owners and managing agents and below we hear from one of our clients on how we have helped them manage the financial aspects of their property portfolio. Client Name 18 Bina Gardens Limited Business Type                 ...

More than just property accounts

More than just property accounts

As specialist accountants to the property sector, over the years we have helped our clients with much more than just preparing and certifying service charge and property accounts. We aim to provide a holistic service that meets the needs of landlords and leaseholders...

How to change your property accountant

How to change your property accountant

There may be several reasons why you decide to change your property accountant. The process needn’t be complicated and below we set out some of the key considerations you need to be aware of.   What to look for when choosing the right accountant? Your accountant...

Exam Success for Roxanne

Exam Success for Roxanne

Having only joined MJP last September, we are delighted to announce that Roxanne Burness-Moakes, has recently passed the Certificate level of the Institute of Chartered Accountants in England and Wales (ICAEW) ACA Level 7. From teaching to accountancy Prior to joining...