If you own or manage block rental properties, you’ll know that you have a requirement for accounting for your annual service charges. As your property portfolio grows, so does the size of these accounts and in turn the importance of ensuring you instruct property accountants who are capable of managing them. 

As one of the Northwest’s largest accountants, we take care of the accounting needs of various property clients including block management companies. Here, we explore your liability, the need for auditing and the benefits of having your service charge accounts audited by an independent accounting firm.

Service charges explained

A service charge is paid by residents of each dwelling within the building. The charge goes towards the upkeep and running of communal areas, for example:

  • Electricity bills for communal lighting 
  • Gardening costs for grounds upkeep
  • Staff wages e.g. concierge/ building manager
  • Money to top up the reserve fund for larger planned and unexpected expenses

In most cases, the charge will be taken in advance of the year based on estimates from the costs of the year before. Sometimes a shortfall will occur in which the actual expenses exceed the estimates, in these cases the residents will be charged a one-time levy to cover the deficit. 

For owners and managers of large apartment blocks, these expenses can equate to tens or even hundreds of thousands of pounds on a yearly basis. 

Do service charge accounts require an accountant?

Landlords are obligated to present an annual statement of service charge expenditure to the tenants who pay into the service charge. This annual statement is required to be audited by an independent, accredited accountant to ensure its validity. 

What kind of accounting needs would a block management company have?

The accounting needs of corporate landlords with a large portfolio are multifaceted. Let’s explore exactly what an accountant charged with looking after the finances for this kind of business would be required to undertake.

Prepare service charge accounts and budgets

  • Estimate annual costs for maintenance, repairs, staff salaries, utilities etc.
  • Determine service charge amounts to be collected from leaseholders/tenants
  • Prepare annual service charge account statements showing income and expenditures

Audit service charge accounts

  • Independently audit/verify service charge accounts before issuing to leaseholders
  • Ensure charges comply with lease agreements and statutory regulations

Financial accounting and reporting

  • Maintain books of accounts for the block management company
  • Prepare financial statements (income statement, balance sheet etc.)
  • Handle accounts payable, receivables, payroll etc.

Tax compliance

  • File necessary tax returns (income tax, VAT etc.)
  • Ensure proper tax deductions and credits are claimed
  • Advise on tax liability and seek means for tax relief where applicable

Budget management and cash flow

  • Manage cash inflows (such as service charges) and outflows (such as expenses)
  • Prepare budgets and cash flow forecasts
  • Advise on reserve/sinking funds for future repairs and improvements 

Statutory and regulatory compliance

  • Ensure accounts conform to accounting standards, company laws etc.
  • File statutory returns and reports as required

Advisory services

  • Provide financial advice to block managers on cost optimisation
  • Advise on accounting system improvements
  • Assist with audits by regulatory bodies

Reporting on Service Charge Accounts

Do I need an audit or a report of factual findings? This is a question we get asked regularly by block management companies we work with. The complexity of knowing which of these is appropriate for your building is due to the nature of leases in the UK. As many buildings are so old, they still exist under the terms of a lease that was drawn up many decades ago. As such, terminology about audit requirements has also changed and there’s sometimes room for interpretation about what is necessary. 

If an audit isn’t specified in the lease, the landlord or managing agent may be able to instruct a property accountant to prepare a report of factual findings in place of an audit. We’d advise getting in touch with us to see whether you can proceed with a faster and less extensive report of factual findings or if an audit is strictly needed. Williamson & Croft can then support you with either.

Williamson & Croft provides comprehensive accounting support to block management companies

As we’ve explored, the accounting needs for a block management company are vast and require a meticulous approach, especially as service charge accounts are under scrutiny from the tenants who contribute to it. If you need an accountant you can entrust with these vital tasks, Williamson & Croft are here to help.

Do you need a company to thoroughly take care of your property accounting needs?  Contact our team of expert accountants at Williamson & Croft today.