Resident Management Company Finances
Under s391(2) of the Companies Act 2006 (accounting reference periods and accounting reference date) when a new company is set up its Accounting Reference Date is the last day of the month in which it is registered. It is this date that identifies the end of the Accounting Reference Period or financial year, and the last dates for delivering accounts to its members and to Companies House. Under s392 of the Companies Act 2006 (alteration of accounting reference date) a company can change its accounting reference date but when such a change is made, the accounting period cannot last less than 6 months and not more than 18. The financial year ends with the Accounting Reference Date (plus or minus 7 days).
Whichever period is covered, a copy of the statutory accounts must be filed with the registrar of companies at Companies House within 9 months of the accounting reference date which is when the company’s annual accounts are calculated. It starts when a) a company begins to trade or b) immediately after the end of a previous accounting period. In any event, no matter what period a company’s accounting year covers, the initial accounting year end date will be on the first anniversary of the end of the month in which it was incorporated.
Under s386 of the Companies Act 2006 residential management companies (and this includes managing agents) are required to keep accounting records, just like commercial companies. Whilst the explanatory notes contained within the Act state that ‘accounting records is a broad term and there is no specific definition as the records may differ depending on the nature and complexity of the business’ what this basically means is that regardless of how basic or sophisticated a company is, as a general rule accounting records should include the following:
- All financial transactions i.e. money received and spent;
- Details of assets owned by the company which must be able to be disclosed at any time and with reasonable accuracy;
- It’s liabilities, i.e.debts the company owes or is owed;
- Stock the company owns at the end of the financial year;
- Stocktaking used to work out the stock figure;
- Bank statements;
- Purchase orders;
- Sales and purchase invoices.
These accounting records must be kept at the company’s registered office address (or any other place deemed suitable by the Company Directors) and under s388 of the Act must be kept for at least 6 years for public companies and at least 3 years for private companies. It is however important to note that other legal considerations, (such as tax legislation), means that companies usually need to keep the accounting records for longer periods such as when:
- They show a transaction that covers more than one of the company’s accounting periods;
- The company has bought something that it expects to last more than 6 years, like equipment or machinery;
- The Company Tax Return was sent late;
- HMRC have started a compliance check into the Company Tax Return.
Wherever they are held they must be open to inspection by the company Directors and officers at any time.
Delivery of Statutory Documents
There are strict deadlines imposed for the delivery of statutory documents and they are only considered delivered when they are actually received at Companies House in an acceptable format. A reminder is sent every year to the registered office and if deadlines are missed then the company will receive an automatic financial penalty even if the accounts are late by just one day. Directors may also be prosecuted or the company struck off. If there are any reasons for the accounts to not be delivered on time, it may be possible to apply for an extension but this will apply only in situations that are beyond the control of the directors and their professional advisors. Applications for an extension must be made in writing before the deadline.Sending the accounts too close to a deadline that expires on a bank holiday will not count. T
Any tax payable requires a tax reference which can be obtained by submitting a form 64-8 which is used to enter agent authorisation details on a taxpayer or claimant record. It doesn’t register the business with HMRC so in order for a 64-8 to be processed, a client record with a Unique Taxpayer Reference (UTR) must already be in existence or a registration form submitted along with the 64-8 and the tax reference asked for then. The process can take a few weeks.
Active For Corporation Tax Purposes
The definition of being active for corporation tax purposes is not necessarily the same as that used by HMRC in relation to other tax areas such as VAT, or by other government agencies such as Companies House. A corporation tax accounting period is also different from similar terms used by other HMRC tax areas (such as VAT accounting periods) or other government agencies (such as Companies House accounting reference periods).
For corporation tax purposes a company is considered to be active when it is:
- Carrying on a business activity such as a trade or professional activity;
- Buying and selling goods with a view to making a profit or surplus;
- Providing services;
- Earning interest;
- Managing investments;
- Receiving any other income.
Corporation Tax Accounting Period
The company or organisation’s Corporation Tax accounting period is normally 12 months long and matches the company’s 12-month financial year which begins and ends with the dates covered by the company’s annual report and statutory accounts that are filed at Companies House.
In some instances the Corporation Tax accounting period won’t be the same as the company’s financial year if, for example:
- The accounts cover a period of more than 12 months – such as if the newly-formed company is preparing its first accounts to cover a period of more than 12 months, or the existing company changes its financial year end;
- The company has been dormant and once again starts to carry on business activity – here the Corporation Tax accounting period may start on a different day from the start of the financial year.
Note: Ground rent is not part of the variable service charge and because it is not subject to the s42 trust provisions it does fall within the scope of corporation tax.