Service charge accounting best practice guide revised by ARMA

The Association of Residential Managing Agents (ARMA) has revised its advice on best practice when it comes to service charge accounting.

The guide was produced after the Government decided not to implement regulations that would give more protection to service charge money.

As a result, the ARMA worked together with the Institute of Chartered Accountants for England and Wales (ICAEW) and Royal Institute of Chartered Surveyors to issue a guide. A revised edition from June 2016 is now on its website.

Here is a summary from the guidance:

• Service charge money paid by leaseholders is trust money and should be held in ring-fenced designated bank accounts (under S42 of the Landlord and Tenant Act 1987).
• Landlords and managing agents don’t need to have separate bank accounts for each property or scheme unless the lease requires one. But the funds for each property or scheme must be separately identifiable.
• All leaseholders paying variable service charges should receive an annual statement from their landlord within six months of the end of the accounting year.
• The annual statement should include an income and expenditure account and a balance sheet. It should be prepared on an accruals basis.
• An independent accountant should examine all annual statements of account before they are issued to leaseholders.
• The type of examination will depend on the terms of the lease and should be proportionate to the size and nature of the property/scheme. The approach should be agreed on by the accountant and the client landlord, Residents’ Management Company (RMC) or their agent.
• If the service charge statement is prepared on behalf of an RMC, then it should be separate to the annual accounts filed by the company at Companies House.

At RDP Newman our 50 years’ experience in dealing with property management accounts means that our accountants are highly skilled and aware of the challenges faced by this sector. We can help you with any accounting requirements, which would free you up to concentrate on other important issues at hand.