Maintenance payment flow of funds

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    Maintenance payment flow of funds

    Hi all,

    I am one of three flats and I own a share of freehold. We've setup a company to deal with the day-to-day matters such as maintenance payments and such.

    One of the freeholders, who is also a director of the company, usually arranges quotes for maintenance works and insurance renewals.

    This director also has a separate business, which has a business banking account, this is not related to our management company in any way.

    A question has come up regarding payments for maintenance works and also things like insurance renewals.

    Do I increase my tax liability/chance of questions from HMRC if I make maintenance, insurance, etc. payments to this business account? The payment would then be aggregated with the other two flats and sent onward to the service provider.

    Or is it best practice to make the payment directly from my BTL account (where rent is paid to and other miscellaneous expenses come out of) to the service provider so that payment can marry up with a third of each invoice?

    Thanks in advance.

    It is better for the service charge money to be kept in a separate current account because the bank statement records can be made available for inspection by any leaseholder. The unspent service charge money / funds should not be mixed with a business account belonging to one of the leaseholders.


      I'm not clear as to whether the company is the actual freeholder, or you are tenants in common. In the latter case, setting up a company is an unnecessary expense, which probably cannot be fully funded from the service charges.

      Also I'm not clear as to whether any service charges are paid on account (more than trivially in advance of being spent).

      Service charges are held in trust. It is bad practice to mix trust money in the same account as other money, however, if the money is only passing through the account very quickly, this may be tolerable.

      There is legislation that has been enacted but never commenced that would absolutely require a nominated trust account to be operated. and there is guidance in a document with similar status to the Highway Code, that this should be done.

      It is possible that the bank may not be happy with the account being shared.

      Note that that the management company must be not for profit, otherwise it will be subject to legislation applying to managing agents, regarding redress schemes.


        Thanks for your replies.

        We are tenants in common and although the initial idea was to pay funds in advance, I am not for this so the plan would be that funds are paid as they are required.

        What about HMRC, does anybody know if I'd be unable to offset these payments against tax given that they've gone into an unrelated account?

        I also presume the actual statements will not be made available to me as they'd have other business transactions going on that I should not be privvy to. So if I can't prove the money left the actual account to pay for the service provider, would I be able to offset this expense against tax?



          For your BTL letting business , you are required to keep proper records of the rental income and expenses for each year and be able to report the figures in your annual income tax return.

          The rental income and expenses must be supported by bookkeeping records, suppliers invoices and your bank account statements and cheque payments for allowable expenses paid to suppliers. These records have to be kept for 6 years in case of tax audit .

          If you operate an online bank account for your BTL , you must print out bank records on monthly basis to have a record of bank payment transfers.


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