Are these accountancy costs for Limited company reasonable?

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    Are these accountancy costs for Limited company reasonable?

    We bought our first home in January 2018, a leasehold flat with a share of freehold. It's a first-floor maisonette in a block of four, which is managed by a Limited company with two directors, both of whom own flats adjacent to ours. This week we have been served by the management company with an invoice for 2018's management costs which amounts to over £1000. This amount consists mainly of buildings insurance and accounting costs. The latter shows that we are asked to pay £1500 toward accounting for the period 2017 (before we moved into the property). I know that common sense would suggest that we can't be responsible for costs incurred before our taking legal ownership, though would we be expected to pay as the previous owner would have paid any amount that was known at the time we exchanged?

    I knew that we were going to have issues when this time came and I have spoken with one director and shared my thoughts on what I perceive to be grossly overpriced and unnecessary accounting costs. The limited company has very little money moving through it - I assume the only cash resulted from sale of land owned by the freeholder which has now been developed - a transaction that preceded our purchase.

    In conclusion, the management company is paying thousands to an accountancy firm to submit abbreviated accounts and confirm status with the HMRC.

    #2
    For only 4 flats, accountancy fees for the WHOLE property should not be more than $ 750.
    That's £ 187.05 each.

    One of my 8 flats is £ 900 total for whole property ( £ 112 each flat )

    You are being ripped off.

    Are you a shareholder ?

    Comment


      #3
      Thanks Ram, that's useful info. As for being a shareholder, we completed without our name replacing the vendor's on the share certificate, despite my badgering our solicitor at the time. This was raised by the management company a couple of weeks ago, when writing to us to inform that the accountancy firm would charge £250 to issue the certificate in our name (something I suspect does not need involvement of an accountant).

      The intention is that we would be 25% shareholder, along with the other three flat-owners.

      Comment


        #4
        £1,500 total is too much.

        However, the way things work is that you take on the previous leaseholder's debts. Typically, during the conveyancing, it is arranged that all the known debts are paid off and pre-paid service charge (but not reserve/sinking funds) are refunded, by the seller, in proportion to the amount of the accounting year left. This is an arrangement with the seller. If the amounts are wrong, you need to take this up with the seller, not the management company or managing agent.

        Comment


          #5
          Presumably the preparation of the service charge accounts is included within that figure. Is there any other service provided such as company secretary?
          The cost will depend on the amount of work involved and the quality of the accounting by the management company. I have known the amount to be £250 for a block of 130 flats.

          Comment


            #6
            Thanks, LH64. At the time of the purchase, we were satisfied that the seller had taken care of the service charge to the end of 2017, and we were not concerned by the 11 days of Jan for which we would be paying before taking ownership. There is less than £10k belonging to the management company showing in the micro accounts filed for HMRC, though 2016 showed closer to £50k (resultant from the sale of part of the land owned by the freehold) and it seems that we are being charged a percentage of this accounting period). I would be deluded to entertain the thought that the seller would enter negotiation on settling a portion of this, so do we just suck it up and pay, and then enter into discussions to ensure that we do not get hit with a similar bill next year?

            It's all left a bitter taste in my mouth, and it was mentioned unprompted during that same conversation earlier this week that we don't own the roof space - something we're aware of, though we had hoped to have agreement at some future point to go into the loft and convert it into a much needed additional bedroom with ensuite.

            Comment


              #7
              Your solicitor should have asked the right questions and obtained information regarding the service charges up to the date of sale.
              You should not be relying on filed (presumably at Companies House) information, you should receive a set of service charge accounts and a statement or certificate showing your share of the total costs less amounts paid on account.

              Comment


                #8
                eagle2,

                There is an amount included for services rendered by the management company itself (around £750, if I recall - I can't confirm as at work without the paperwork). That amount is independent of the thousands that are being paid to a "leading independent firm of Chartered Accountants and Business Advisers with offices across the UK" for accountancy services.

                The situation is seemingly one of overkill as far as I'm concerned and quite disappointing. The only other leaseholder who is not part of the management company has fallen out with the management company/neighbours/fellow leaseholders, as she took issue with the invoiced amounts in previous years. She also had the land that was sold to a developer allotted to her share of freehold (every leaseholder took a parcel of neighbouring land) was forced to share the proceeds following its sale. I suspect that is not uncommon, though it perhaps indicates that this is a business that obviously wants to earn money regardless whether it maintains neighbourly relations.

                Comment


                  #9
                  Presumably these charges are for the service charge accounts (not management company accounts - which should be kept separate).

                  Service charge accountancy costs may be increased if the leases state that an audit is required, but (I.M.O.) tend to be far higher than is reasonable for small blocks, and typically provide nothing worthwhile.

                  For my block of ten units accountancy costs have been between £720 & £800 per year.

                  Comment


                    #10
                    eagle2,

                    I had been relying on what I could get from Companies House, which echoed the general way in which the conveyance was handled - we did much of the legwork in order to get it done as quickly as possible. It was down to me to provide our solicitor with confirmation emailed by the vendor that stated that he would "pay the full maintenance charge fee owed by XX property for the period 1st January 2017 - 31st December 2017."

                    Comment


                      #11
                      We seem to be confusing management companies, managing agents and freeholders.

                      The management company and freeholder may be the same. I suppose it is technically possible for the management company to be the same as the managing agent. If the management company is taking fees for their management services, they need to be treated as a managing agent and belong to one of two recognized redress schemes, for which they will have to pay money.

                      Typically the management company would have no money at all shown at Companies House, as the service charge funds are held in trust and are not owned by the management company.

                      The proceeds of the sale should be on the freeholder's accounts, not the management company accounts. If they are the same entity, you shouldn't be expected to pay costs associated with their freehold role, unless, and even then it is questionable, you own the company (which your reference to shares suggests may be the case).

                      If you part own the company, the company can't really be profiteering from you.

                      I got totally lost in the bit about land parcels. In the company type share of the freehold, the leaseholders hold shares in the freehold company and have no freehold titles in their own name.

                      I think you need to carefully read the leases and the company constitution and make sure you really understand the legal framework that applies.

                      Comment


                        #12
                        The only meaningful accounts are the service charge accounts and your solicitor should have obtained copies for the last 3 years, If there is something to pay by a vendor, it is normal for a solicitor to insist on monies being retained until it Is settled.
                        Moving forward, you should look at the lease to see whether or not an accountant and an audit are required and if not, recommend to the other leaseholders that you save the cost,

                        Comment


                          #13
                          Thank you again, LH64. I haven't explained it as best I could, as it is a minefield to me - embarrassingly I graduated with a law degree in 2001, though land law always was completely abstract to me. I have read, re-read and digested the leases (there are 3 that affect the property), though it is still not entirely clear to me what's what.

                          The management company is a limited company with 4 shareholders - each being a leaseholder with 25% share of the freehold (I believe).

                          I've just checked attachments sent prior to exchange and see the management costs in respect of managing the block in 2016 as show:

                          One quarter contribution of £670 to the accountancy firm "for professional services rendered in respect of registered office and secretarial services".

                          One quarter contribution of £980 for professional services rendered in respect of preparation of statutory accounts for year ending 2015".

                          One quarter contribution of £100 to Barclays in respect of account maintenance charges ..."

                          Comment


                            #14
                            Nothing seems to be going to the management company. It is the secretarial and registered office costs that are questionable, but it is possible they are doing enough work to justify them.

                            I don't believe you own 25% of the freehold. I believe the company owns 100% of the freehold and you own 25% of the company. "Share of the freehold" is estate agent speak. It can refer to several different arrangements. It is possible for you to actually own 25% of the freehold, but in that case you would expect that 25% of the proceeds of the sale would go to you personally (and you might have to pay CGT on them).

                            I don't understand how you can have three leases in any sensible arrangement.

                            I suggest reading the leases to find out who they say the lessor is, and paying £3 for the freehold title, to see who it says the freeholder is.

                            Comment


                              #15
                              £670 for a registered office and secretarial services for a dormant or quasi dormant company is unreasonable.
                              £980 for the statutory accounts is also unreasonable.
                              £100 for bank charges is also unreasonable, the company should have a client account to hold service charge monies and there is usually no charge by a bank. With just 4 flats, the number of transactions cannot be great.
                              So there is definitely scope to cut your costs and you should call a meeting of members as soon as possible.

                              Comment

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