RMC - Dormant Status with HMRC - Banking

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    RMC - Dormant Status with HMRC - Banking

    I'm one of the directors of an RMC looking after a leasehold building (having recently taken over from an external property manager).

    The company is dormant at HMRC. It has a business account, unused. All of our funds (service charge monies) are in a separate client account.

    Not using the main business account is a pain since we can't set up DDs from the client account or use a debit card.

    Also once the bank starts levying bank charges (in about 2 months from now), it'll take those charges from the main business account, which could cause problems if it's empty.

    I could solve this problem by shifting some of the service charge monies into the main business account, but I'm wary of doing this because I don't want the company to lose its dormant status at HMRC.

    Am I right to worry about this?

    Guidance eg. https://www.gov.uk/set-up-property-management-company suggests that we may be ok (since I think we fulfil the criteria for being deemed to be dormant for tax purposes). However I would like to be sure.

    The RICS guidance for leasehold management makes it clear that professional property managersshould hold separate client accounts for clients' service charge monies, but in the case of self-managed blocks it simply says "Self-managed blocks should obtain a statement from their bank that the funds are ring-fenced." and I'm not quite sure what that means. Ring-fenced from what? It would be nice to do away with the need for two separate bank accounts altogether, but I'm struggling to find clear guidance on this point, so I've left it for now.

    Grateful for any advice...
    Thanks.

    #2
    Are you sure that you have a client bank account? Banks do not normally make transaction charges on those accounts. If you do, you may wish to try another Bank.

    If you start using a business bank account for the RMC, it will lose its dormant status. You have to confirm that there are no transactions during the accounting period and you will be unable to do so if entries start going through the bank account. There will not be a problem for tax purposes assuming that there will be no taxable profit.

    Comment


      #3
      Originally posted by eagle2 View Post
      Are you sure that you have a client bank account? Banks do not normally make transaction charges on those accounts. If you do, you may wish to try another Bank.

      If you start using a business bank account for the RMC, it will lose its dormant status. You have to confirm that there are no transactions during the accounting period and you will be unable to do so if entries start going through the bank account. There will not be a problem for tax purposes assuming that there will be no taxable profit.
      Thanks. Yes we have a client account with Barclays. There are no charges for this account (no fixed monthly fee and no per transaction charges) but there will be a £6.50/month fixed charge for the main business account (to be paid, presumably, from that same account!).

      If we lose the dormant status, there's no problem for tax purposes if no taxable profit? Understood. But since in any given year we may generate a surplus (intended to be a future provision for things like periodic external renovations), could HMRC deem this to be a taxable profit (which they're not doing at the moment of course)?

      There would be a small upside to not being dormant: the company pays a bit more for its electricity because supplier EDF ran a credit check on us and we lost a few brownie points there for being dormant. As for everything else, I don't think I fully understand the implications of being dormant (or not)...

      Comment


        #4
        If you are worried about losing dormant status for tax purposes you should be all right as the company is a flat managenemt company. See the sub-heading "Dormant company definition for corporation tax purposes" on this page of the site you quote: https://www.informdirect.co.uk/busin...-requirements/

        The criteria for determining if a company is dormant for Companies House purposes are very narrow indeed. See the next sub-heading "Dormant company definition for corporation tax purposes". Opinions differ on whether a flat management company is dormant if all funds stay in the hands of a managing agent. See the discussion here: https://www.londonlaw.co.uk/flat-management.aspx

        Comment


          #5
          Originally posted by Lawcruncher View Post
          If you are worried about losing dormant status for tax purposes you should be all right as the company is a flat managenemt company. See the sub-heading "Dormant company definition for corporation tax purposes" on this page of the site you quote: https://www.informdirect.co.uk/busin...-requirements/

          The criteria for determining if a company is dormant for Companies House purposes are very narrow indeed. See the next sub-heading "Dormant company definition for corporation tax purposes". Opinions differ on whether a flat management company is dormant if all funds stay in the hands of a managing agent. See the discussion here: https://www.londonlaw.co.uk/flat-management.aspx
          Thank you. So it seems we might be ok re: HMRC but not for Companies House. What would be the implications for us of losing the dormant status at Companies House? Is it simply that we would have to file "proper" accounts there? (in the past the accounts filed at CH have been empty save for showing share capital)

          Comment


            #6
            The Company affairs and the service charge funds need to be kept entirely separate. You would still not be able to use DDs and cheques on the business account for the service charge expenditure. If the Bank charges the Company business account, the RMC may not be able to recover the amounts under the service charges, it depends on the wording of the lease. The RMC may need to rely on other sources of income such as administration charges for supplying information when someone sells or it may need to call for monies from members rather than leaseholders. Reserve funds would need to be kept entirely within the service charge funds and used only for their stated purpose. The credit rating of the RMC is unlikely to be affected because the service charge income would not be shown within the RMCs own accounts. You are not alone when you do not understand the question of RMCs and dormant accounts, one day the accountancy profession will get its act together. Practically, whether the RMC is a dormant company or a micro entity has very little effect, there are either no or very few entries involved.

            Comment


              #7
              Originally posted by eagle2 View Post
              The Company affairs and the service charge funds need to be kept entirely separate. You would still not be able to use DDs and cheques on the business account for the service charge expenditure. If the Bank charges the Company business account, the RMC may not be able to recover the amounts under the service charges, it depends on the wording of the lease. The RMC may need to rely on other sources of income such as administration charges for supplying information when someone sells or it may need to call for monies from members rather than leaseholders. Reserve funds would need to be kept entirely within the service charge funds and used only for their stated purpose. The credit rating of the RMC is unlikely to be affected because the service charge income would not be shown within the RMCs own accounts. You are not alone when you do not understand the question of RMCs and dormant accounts, one day the accountancy profession will get its act together. Practically, whether the RMC is a dormant company or a micro entity has very little effect, there are either no or very few entries involved.
              I don't really understand this I'm afraid. The company has no "business" of its own - it exists purely to receive service charge money and to spend it on buildings maintenance, etc. The shareholders of the RMC are the exact same set of people as the leaseholders paying the service charges. I can't make sense of the distinction between the two - it feels artificial.

              Comment


                #8
                The Companies House accounts only include the balance sheet, even if not dormant, so are hardly going to be onerous to produce.

                Comment


                  #9
                  The distinction is important for reasons other than the accounts. As leaseholders and lessor people are bound by the terms of the lease. Although as members of the company they can request the company to do things, they company can only do those things that are permitted by the lease.

                  Comment


                    #10
                    Originally posted by bigalxyz View Post
                    What would be the implications for us of losing the dormant status at Companies House? Is it simply that we would have to file "proper" accounts there? (in the past the accounts filed at CH have been empty save for showing share capital)
                    I believe a civil penalty is payable.

                    Comment


                      #11
                      Originally posted by Lawcruncher View Post

                      I believe a civil penalty is payable.
                      How can we avoid "significant accounting transactions" (in order not to lose the dormant status at CH)? Apart from anything else, Barclays are going to start taking bank charges out of the main business account soon, so we'll need to put some money in there to cover that. £78 a year goes in, 12 * £6.50 goes out. CH will then say that this is not a dormant company?

                      Comment


                        #12
                        You need to distinguish between members and leaseholders even if they are the same persons. You can only charge leaseholders in accordance with the terms of the lease. You do not appear to have the right to transfer monies from the service charge funds to the business bank account. I would speak to Barclays otherwise you would need to borrow monies or a director would need to lend monies to the business account until it had funds of its own to repay the loan. HMRC will not be interested unless the RMC makes a taxable profit. The information to be filed at Companies House will be very similar and it can be filed online. Companies House accept the word of a director as to whether or not a company is dormant or a micro entity.

                        Comment


                          #13
                          That appears to be normal. Does the lease allow service charge funds to be lent to the RMC? Does it allow the running costs of the RMC to be treated as service charge expenditure?

                          I used to hold client accounts at Barclays and they made no transaction charges at all. Maybe they have changed their procedures. I know that Lloyds advertise client accounts with no transaction charges Perhaps you can threaten to move the account and any personal accounts in order to persuade Barclays not to make charges.

                          The accounts of the RMC would still exclude the service charge monies even if it loses its dormant status. In your example, the only entries which would appear in the RMC are the costs of £78 and any loan to finance those costs until it receives other income. Companies House is unlikely to show any interest in the Company whether it is dormant or it has a loss of £78 as long as some accounts are filed on time.

                          Comment


                            #14
                            Originally posted by eagle2 View Post
                            That appears to be normal. Does the lease allow service charge funds to be lent to the RMC? Does it allow the running costs of the RMC to be treated as service charge expenditure?

                            I used to hold client accounts at Barclays and they made no transaction charges at all. Maybe they have changed their procedures. I know that Lloyds advertise client accounts with no transaction charges Perhaps you can threaten to move the account and any personal accounts in order to persuade Barclays not to make charges.

                            The accounts of the RMC would still exclude the service charge monies even if it loses its dormant status. In your example, the only entries which would appear in the RMC are the costs of £78 and any loan to finance those costs until it receives other income. Companies House is unlikely to show any interest in the Company whether it is dormant or it has a loss of £78 as long as some accounts are filed on time.
                            More lease wording:

                            "Generally managing and administering the Maintained Property and protecting the amenities of the Maintained Property and for that purpose if necessary employing a firm of managing agents or consultants or similar and the payment of all costs and expenses reasonably incurred by the Management Company" - seems fairly broad re: covering all reasonable RMC expenses.

                            I don't see anything about lending service charge funds to the RMC though.

                            I still don't really understand where this leaves us.

                            I've just printed this out:

                            https://www.icaew.com/-/media/corpor...nts.ashx?la=en

                            so there's a bit of bedtime reading for me. Seems to be the ICAEW's latest guidance on this subject.

                            Comment


                              #15
                              1. The unspent money , raised from the annual service charge,belongs to the leaseholders and the money should be held in a separate bank account , separate from personal expenses. So the RMC's bank account can be called a "client account No 1 " or " 27 Garden Road Service charge account" etc.

                              2. Since the RMC has no income from trading with external parties and relies on its annual registration fee paid from the service charges , then it can file annual dormant accounts to Companies House.

                              3. Don't use debit card as you will mix payments with personal spending . Just use a cheque book for paying service charge bills from service providers.

                              4. You have to operate the service charge bank account to comply to the "RICS Residential Management Code" , arrange annual audit of spending and be able to show the bank statements to leaseholders.

                              5.if the directors do not want to self manage, then appoint a local managing agent to do the work.

                              Comment

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