RMC - Dormant Status with HMRC - Banking

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    #16
    Originally posted by Gordon999 View Post
    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.
    Thank you.

    1. When you say “separate from personal expenses” - I don’t understand. Which expenses are you referring to?

    2. Ok (I think)

    3. I have a debit card for the RMC’s normal business account, but not for the “bolt on” client account. I wasn’t talking about using my own personal debit card here.

    4. There’s no problem re annual audit of spending and showing bank statements to leaseholders. I think the RICS guidance is ambiguous on the separate client account point for RMCs however (which is a big part of the reason why I’m so confused).

    5. We want to do it. Appointing an external agent will be expensive.

    Comment


      #17
      If the RMC company is kept non-profit making and staying dormant, the RMC does not need a "business account with debit card".

      The RMC just needs a current account with cheque book for the service charge money ( designated a client account.) to ring-fence the money as belonging to the leaseholders. If the directors mis-managed the maintenance of the building ; and the RMC was made bankrupt and put into liquidation RMC, the funds in the ring-fenced client account would be protected against seizure by the creditors. .

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        #18
        You should be very careful to use service charge monies only for purposes which are stated within the lease. You are not allowed to transfer monies from the service charge fund to the RMC business account simply because the RMC is short of monies.

        Was it your or the Bank's idea to have a business account with a debit card?

        Comment


          #19
          Originally posted by Gordon999 View Post
          If the RMC company is kept non-profit making and staying dormant, the RMC does not need a "business account with debit card".

          The RMC just needs a current account with cheque book for the service charge money ( designated a client account.) to ring-fence the money as belonging to the leaseholders. If the directors mis-managed the maintenance of the building ; and the RMC was made bankrupt and put into liquidation RMC, the funds in the ring-fenced client account would be protected against seizure by the creditors. .
          Barclays insisted on this structure. They only offer client accounts as add-ons to a standard business accounts. Lloyd’s were the same. I also spoke to HSBC and to Metro Bank but they weren’t able to open accounts for the RMC at all.

          As a simple example of the practical difficulties, if I have to keep all funds in the ring fenced client account, what happens when the bank tries to take £6.50 a month from the unused business account for bank charges? How do I pay those charges?

          Comment


            #20
            Originally posted by eagle2 View Post
            You should be very careful to use service charge monies only for purposes which are stated within the lease. You are not allowed to transfer monies from the service charge fund to the RMC business account simply because the RMC is short of monies.

            Was it your or the Bank's idea to have a business account with a debit card?
            Re business account with debit card - see previous post - Barclays insisted on it, yes.

            I’m still confused. Here’s an example. We need to buy some fire door signs and the like. Things like this are very cheap on eBay. Are we only to use cheques to pay for this sort of thing, in 2019? I don’t fancy my chances of finding an eBay seller who accepts cheque payment. In fact I think it would be difficult to find anywhere to buy these items if I have to pay by cheque.

            As another example, are we really not allowed to set up direct debits to pay our electricity bill each month, in 2019?

            Comment


              #21
              You should check your lease carefully to see if the running costs of the RMC are allowed to be charged as service charge expenditure. If there is no mention of those costs in the lease, there is conflicting advice as to whether or not you may pay for them out of service charge funds.

              To answer your questions, if the Bank charges £6,50 to the RMC and there are no funds, it will create an overdraft unless the RMC borrows monies from say a director. You should ensure that the RMC does generate some income to pay for these costs say interest on late payments or administration charges for supplying information or registration fees.

              There is nothing wrong in someone, say a director paying for items in cash and then seeking reimbursement from the service charge funds,

              When I was dealing with client account payments, nearly all were made by direct bank transfer. I would avoid direct debits anyway,

              Comment


                #22
                If you are satisfied that the lease allows the costs of the RMC to be charged as service charge expenditure, there is no problem, the bank charges can be reimbursed from the service charge funds. You will have similar issues with filing fees payable to Companies House and any costs of an AGM.

                I am assuming that there are not many leaseholders involved and as long as you keep them all informed and they all agree with what you are doing, there should be no need to worry, A problem will only arise if a leaseholder refuses to pay some of the charges and you go to court or a Tribunal in which case you would need to be concerned with what the law says.


                Comment


                  #23
                  Originally posted by bigalxyz View Post
                  How can we avoid "significant accounting transactions" (in order not to lose the dormant status at CH)?
                  In my view I do not think you can. A company is not dormant simply because it is non-trading. Section 1169(1) of the Companies Act 2006 tells us that 'a company is “dormant” during any period in which it has no significant accounting transaction'. Subsection (2) tells us that 'a “significant accounting transaction” means a transaction that is required by section 386 to be entered in the company's accounting records". Subsection (3) lists transactions which are not to be considered significant and none are relevant to your question.

                  Section 386 provides as follows:

                  (1) Every company must keep adequate accounting records.

                  (2) Adequate accounting records means records that are sufficient—

                  (a) to show and explain the company's transactions,

                  (b) to disclose with reasonable accuracy, at any time, the financial position of the company at that time, and

                  (c) to enable the directors to ensure that any accounts required to be prepared comply with the requirements of this Act (and, where applicable, of Article 4 of the IAS Regulation).

                  (3) Accounting records must, in particular, contain—

                  (a) entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place, and

                  (b) a record of the assets and liabilities of the company.

                  (4) N/A

                  (5) N/A

                  Suppose:

                  1. You have set up where you have (a) tenants, (b) a company whose obligations include certain repairs and (c) a third party who collects maintenance contributions from the tenants, arranges for such repairs to be carried out and is in effective control of the funds he collects.

                  and

                  2. Repairs are required.

                  If the third party arranges for the repairs and pays for them out of the funds he holds he does so as the agent of the company. The company is the principal and legally is deemed to have entered into the transaction. Whoever does the repairs can sue the company if not paid. It is difficult to see how subsections (2)(a) and (3)(a) are not engaged.

                  NOTE: The London Law link in post 4 does not take you to the page which discusses dormant companies and which I cannot now find. The author did though say that some organisation (I forget which) did obtain a legal opinion which made the agent/principal argument.

                  Comment


                    #24
                    I would suggest that you transfer £100 or £200 from the service charge client account to the RMC business account to cover one years bank charge plus the annual fee payable to Companies House.

                    So you would show £78 paid for bank charge and £22 paid to companies House and both costs are charged to the service charge account. This will keep the RMC as a dormant company.

                    Comment


                      #25
                      Originally posted by eagle2 View Post
                      If you are satisfied that the lease allows the costs of the RMC to be charged as service charge expenditure, there is no problem, the bank charges can be reimbursed from the service charge funds. You will have similar issues with filing fees payable to Companies House and any costs of an AGM.

                      I am assuming that there are not many leaseholders involved and as long as you keep them all informed and they all agree with what you are doing, there should be no need to worry, A problem will only arise if a leaseholder refuses to pay some of the charges and you go to court or a Tribunal in which case you would need to be concerned with what the law says.

                      Thank you.

                      Fairly small group of leaseholders, yes, and it's quite easy to keep them informed & to give them the opportunity to grumble if they're not comfortable with any arrangements.

                      If I've understood properly though, it seems like we're going to lose our dormant status at Companies House. I'm not clear on whether or not this is a problem however (eg will it mean higher fees charged by accountants?).






                      Comment


                        #26
                        Originally posted by Gordon999 View Post
                        I would suggest that you transfer £100 or £200 from the service charge client account to the RMC business account to cover one years bank charge plus the annual fee payable to Companies House.

                        So you would show £78 paid for bank charge and £22 paid to companies House and both costs are charged to the service charge account. This will keep the RMC as a dormant company.
                        I'd be comfortable doing this but surely CH would not say the RMC was dormant? (eg bank charges would be "significant accounting transactions", no?)

                        Comment


                          #27
                          Originally posted by Lawcruncher View Post

                          In my view I do not think you can. A company is not dormant simply because it is non-trading. Section 1169(1) of the Companies Act 2006 tells us that 'a company is “dormant” during any period in which it has no significant accounting transaction'. Subsection (2) tells us that 'a “significant accounting transaction” means a transaction that is required by section 386 to be entered in the company's accounting records". Subsection (3) lists transactions which are not to be considered significant and none are relevant to your question.....

                          .
                          Thank you. I think I agree with this - I don't see a way to keep our dormant status at CH. What I don't think I understand is whether or not that's important!

                          Comment


                            #28
                            If you wish to retain the dormant status of the RMC, I would reimburse each payment made by the RMC separately and promptly. It would be very difficult to argue that the RMC is dormant if it is holding a bank balance throughout the year,

                            Most RMCs appear to be treated as dormant companies but there are strong views for and against,

                            There is no need to employ an accountant if everyone agrees and if supporting documents are made available for inspection by the leaseholders. The filing of accounts with Companies House can be completed online and the amount of time involved is marginal if the Company is dormant or not. The service charges should not be included within the RMC's accounts because the monies do not belong to it.

                            Comment


                              #29
                              The case for the RMC being dormant is that the service charge funds do not belong to the RMC, the RMC has the ability to "deploy" rather than "enjoy" the funds and service charge transactions are kept in separate accounting records. Tech 03/11 explains further and states that the ICAEW obtained Counsel's advice.

                              Comment


                                #30
                                You may find the information by this website about dormant company helpful :

                                https://www.informdirect.co.uk/busin...-requirements/

                                Comment

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