Accounting for RMC

[SHill]

Would anyone be able to advise if a RMC can raise sales invoices to Directors, for property expenses that relate to their leasehold properties. The sales invoices raise are itemised in the Notes to the service charges at. 4. Transactions with Directors and 5. Related party transactions

[SHill]

..........they are not listed on the Notes to the Abbreviated accounts filed at Companies House. Just wondering about the statutory trust concept relating to the RMC Accounts

[eagle2]

We would need further information but they could be the normal service charges issued to the directors.

[SHill]

Thank you for your response

How could further information be obtained?

The NOTES to the service charge only give this information with no detail .

The company has raised invoices to a Company that is owned by the Director under 5. Related party transactions and

The company has raised invoices to the other Director under Transactions with Director and in both cases the invoices relate to where they live. ( there leasehold properties)

What are “normal service charges issued to the directors.”

[SHill]

.... The Company is raising invoices for approx £ 4000-6000 pa for 2 x Directors.

To put it in context the Appointed Managers fee is £3,000 pa ( small building with 4 x one bed flats) very little management, no lift, no garden no common parts to speak of - just a stairway. (Upkeep of stairway is a separate cost between 2 leaseholders which falls outside of service charge)

In relation to the related party transactions ( invoices raised to the Directors Company) the Company would not have raised any legitimate professional fees for the building because no major works have been instructed for 16 years. All other costs are covered by service charge.

1. What expenses are the Directors allowed to claim if the Company is a RMC they live at the leasehold flats, but they issue service charge demands and “manage”the property ( this was the position from 2004-2015) and

2. What expenses are the Directors allowed to claim if the Company is a RMC they live at the leasehold flats, but there is a Manager looking after the service charge and building ( this was the position from 2016-2020)

Are the Directors required to notify all the members first before taking money from the Company?

Thank you

[SHill]

... sorry what I am not understanding is why would a RMC raise invoices to a Director? It would be usual for a Director to claim invoices against a Company.

In what circumstances would a RMC raise an invoice to a Director?

[Gordon999]

You should make application to the FTT for judgement on the service charge which you believe is overcharged and you are not given access to inspect the receipts.

[SHill]

Thanks Gordon 999 The S.27a application has been finalised. I am now trying to understand the Company accounts to ensure the Directors are not misusing them for improper purposes. ie tax avoidance.

They have refused to hand over the service charge bank accounts (trust monies) and Service charge accounts to the S.24 Appointed Manager. This blatant non compliance of the Tribunal Order raises suspicion why they are refusing.

I am trying to understand what rules been put in place to ensure Directors of an RMC behave properly in relation to what they can claim against a RMC and what legitimate invoices can a RMC raise. I was of the understanding that a RMC was an inactive Company and the Service charge statement was prepared separate from the Company accounts and the service charge falls outside of taxation.

[eagle2]

If the RMC has raised invoices, the amounts are included within its income and the only income would normally be service charges. If the directors were claiming monies from the RMC, the amounts would be included within expenditure and would also be included within the same note to the accounts. The directors loan account should also be mentioned as they are related party transactions.

[SHill]

Can someone help me understand the balance sheet and notes to service charge statements because none of the figures below relate to the actual service charge expenditure. Just trying to ascertain why there would be debtors or creditors for a very simple service charge account that collects service charge in advance for a very small building and the repair and maintenance obligations of the lease are in breach by 16 years. A s.27A LTA 1985 showed no payments for services were outstanding.

The Directors submit the figures to the accountant so just trying to understand what is going on and any possible misconduct.

Service Charge Balance sheet

Current assets
Cash in bank. 1,639 (this is clear) previous year 605
Debtors - 17,611 12,547. (If a debtor is someone who owes money to a creditor could this be money owed to a
19,250 13,152. Directors Loan ) All service charge money are collected in advance .


Creditors; amounts falling due within one year -
(19,250 ) previous year (13,152)


Notes to service charge statements

Debtors

Service charge due from tenants 11,002. previous year 6,958 (This would means the Directors have paid no service charges

Other debtors 6,609. 5,589. The S.27A hearing showed there were no invoices unpaid. What else might be
17,611 under "Other debtors". Is a Directors Loan a creditor or a debtor.

Creditors; amounts falling due within one year

Other creditors 14,670
surplus to be credited to lessees 4,580
19,250

Completely confused to what is a debtor or a creditor is. If the RMC owes money for service charge expenditure as a contractor is the contractor a creditor or a debtor?

[SHill]

.... You won't understand above because all figures have moved around.

Service Charge Balance sheet
Current assets
Cash at bank 1,639
Debtors - 17,611
19,250
Creditors; amounts falling due within one year -
(19,250 )

Notes to service charge statements

Debtors
Service charge due from tenants 11,002.
Other debtors 6,609
17,611

Creditors; amounts falling due within one year
Other creditors 14,670
surplus to be credited to lessees 4,580
19,250

[eagle2]

Debtors are monies owing to the RMC, so service charges amounting to £11,002 have been demanded but not paid. It is high but not unusual if demands for the following year are made just before the year end.
Other debtors £6,609 - you should enquire what this is, it appears to be unusual and it is a large amount.
Creditors are amounts which the RMC owes but has not paid at the balance sheet date,
£14,670 could include the monies owing to directors but the service charges owed by the directors would usually be offset against that amount.
The surplus is the difference between the estimated and the actual service charges for the year, it should equal the amounts credited to leaseholders after the year end.

[eagle2]

Completely confused to what is a debtor or a creditor is. If the RMC owes money for service charge expenditure as a contractor is the contractor a creditor or a debtor?

My apologies, I missed your question, if a contractor had carried out work prior to the year end and he had not been paid at that date, the cost would be included under expenditure and creditors.

[SHill]

Thank you for your input your help has been incredibly useful. I am starting to piece it all together and understand the Directors possibly have been abusing their position as Officers to the RMC.

you have said:-
“so service charges amounting to £11,002 have been demanded but not paid. It is high but not unusual if demands for the following year are made just before the year end.”


The total budget for the year was £11,325.
-If all the service charges from all tenants for the last quarter had not been paid by year end the “services not paid by tenants” would be £2,831.
-If the Directors have not paid any of their share for the year the debt would be £6,758.
-The previous year accounts show “services not paid by tenants” £6,958 (coincidentally this equates to the Directors yearly share of the services)
-The arrears from the previous year are not being paid down and are being allowed to accumulate (11,002) The Directors are clearly not contributing their share of the service charge.

Then there is also the matter of the “Other debtors” £6,609. The previous year was £5,589. The only thing I could think of is insurance contributions that are invoiced to the RMC by the superior freeholder at the end of the year but only collected through the service charge in the 1st quarter; the figures in the accounts under “other debtors” don’t equate to the sums paid for insurance though- the insurance is less. The insurance is covered by the Superior feeeholder’s block insurance and the expense is itemised in the expenditure.

I cannot see any scenario that would have required the Directors to loan £14,670 to the RMC. If the service charges owed by the directors is offset against that amount then the Directors loan would have been a lot larger. I understand there are tax implications for the RMC if the Directors loan is not paid down within 9 months.

Even without any concrete answers the statutory trust concept relating to service charge transactions has not been followed and the service charge accounts lack transparency.

If the above throws up any insight I would be grateful for the feed back.

Also:-
The Alpointed Manager has included a 10 year Capex Plan in the budget £1,140. Can you advise what this is and why it would be needed for a very small building of 4 x 1 bed flats. This has never been included in the budget before.

Thsnk you

[eagle2]

A whole year’s unpaid service charges is unreasonable and you have every right to ask why other leaseholders are not paying and why the trend is deteriorating. There seems to be no credit control in place, at least as far as the directors are concerned.
Insurance charged in advance would normally be described as a prepayment in the accounts but it could be incorrectly described. As you suspect there may be loans to directors, you should definitely request more information about the other debtors.
The creditors are very high and again, you should request further details. The amount should not normally exceed one month’s expenditure which is around £900.
On the face of it, there is no need for any large directors’ loans, at worst there can only be temporary cash flow problems depending when the service charge expenditure is actually payable.
If the directors paid their service charges and repaid their loans, debtors and creditors would both be reduced.
I don’t think that you can say that there is a breach of statutory trust as long as monies are kept in a separate client bank account.
The accounts are unusual to say the least and they definitely invite further questions to be asked.
A capex (capital expenditure) plan is another description for a reserve fund. I can understand that the manager needs to raise monies in order to carry out works, which you have said are long overdue. If the lease does not permit it and she has not obtained an order from the FTT, strictly she cannot request it, but if you object, I suspect that she will make an application to the FTT for permission, which would be granted. Alternatively, she could borrow the money, which would involve interest payments and add to the costs.
You can reasonably ask her to explain how she has calculated the sum of £1,140. The good news for you is that she intends to collect monies from the directors and carry out works. The bad news is that when her appointment ends, she will pass any monies to the RMC and they will be under the control of the directors, unless they can be removed.