Question 1

More Pressing Questions

Accepted Answer

Q: 1. We are a company which is owned equally by all the owners of the flats in our block. When we purchased the freehold we agreed to suspend the payment of ground rents, as we would really be paying ourselves. Now a third party has suggested that, as our leases state there is a fixed amount to pay each year, we should not discontinue payments, and in fact there is a tax implication in not declaring a perceived benefit (an average of £200 per annum per flat). 2. Related to this is the fact that, as a registered company owning the freehold, we keep Companies House informed of changes to shareholders and directors etc. However, as we use a managing agent to invoice owners for the service charges and to pay all incoming invoices, no money goes to the freehold company, and we do not have a bank account. We therefore file as a dormant company. Note that the directors are unpaid and do not draw expenses. 3. The same third party has also suggested that as the managing agent has an account in our name, and is acting on our behalf, we are not dormant, and therefore in breach of the law. 4. Obviously we are a non-profit company, as any surplus (we have to estimate costs for the year ahead) goes into our reserve fund. To prove the point, we have in the past lowered charges, as we felt the reserve was sufficient, but this sadly is not usually the case. 5. Should we continue to levy ground rents, thus giving the "dormant" company a profit, and pay dividends to owners who will have to pay tax on money they themselves have paid? Alternatively, do we have to go to the expense of amending 14 leases? 6. Should we declare the company to be active? 7. Again, there will be the cost of preparing annual accounts (though maybe this can be offset against the cost of annual accounts we pay the managing agent); and we may have to pay corporation tax on any deemed profits. A: FPRA Director Shula Rich replies: 1. On tax - I'm not sure of this – I suggest consult your own accountants. Collect ground rent - in my block we do collect it as a useful expenses reserve for the freehold company. 2. Reply - support this if your lessees are shareholders of a company limited by shares 3. You are dormant the service charges belong to lessees not the company 4. See above. Your accounts are income and expenditure not profit and loss 5. You can continue to levy ground rent. This will be in the company accounts - you may have to then make returns as not dormant and pay tax. 6. Yes, if you collect ground rents. 7. Yes, but only on the ground rents. Service charges can be held in the agents’ client account, they do not belong to the company. Question submitted February 2018

Question 2

More Pressing Questions

Accepted Answer

Q: 1. We are a company which is owned equally by all the owners of the flats in our block. When we purchased the freehold we agreed to suspend the payment of ground rents, as we would really be paying ourselves. Now a third party has suggested that, as our leases state there is a fixed amount to pay each year, we should not discontinue payments, and in fact there is a tax implication in not declaring a perceived benefit (an average of £200 per annum per flat). 2. Related to this is the fact that, as a registered company owning the freehold, we keep Companies House informed of changes to shareholders and directors etc. However, as we use a managing agent to invoice owners for the service charges and to pay all incoming invoices, no money goes to the freehold company, and we do not have a bank account. We therefore file as a dormant company. Note that the directors are unpaid and do not draw expenses. 3. The same third party has also suggested that as the managing agent has an account in our name, and is acting on our behalf, we are not dormant, and therefore in breach of the law. 4. Obviously we are a non-profit company, as any surplus (we have to estimate costs for the year ahead) goes into our reserve fund. To prove the point, we have in the past lowered charges, as we felt the reserve was sufficient, but this sadly is not usually the case. 5. Should we continue to levy ground rents, thus giving the "dormant" company a profit, and pay dividends to owners who will have to pay tax on money they themselves have paid? Alternatively, do we have to go to the expense of amending 14 leases? 6. Should we declare the company to be active? 7. Again, there will be the cost of preparing annual accounts (though maybe this can be offset against the cost of annual accounts we pay the managing agent); and we may have to pay corporation tax on any deemed profits. A: FPRA Director Shula Rich replies: 1. On tax - I'm not sure of this – I suggest consult your own accountants. Collect ground rent - in my block we do collect it as a useful expenses reserve for the freehold company. 2. Reply - support this if your lessees are shareholders of a company limited by shares 3. You are dormant the service charges belong to lessees not the company 4. See above. Your accounts are income and expenditure not profit and loss 5. You can continue to levy ground rent. This will be in the company accounts - you may have to then make returns as not dormant and pay tax. 6. Yes, if you collect ground rents. 7. Yes, but only on the ground rents. Service charges can be held in the agents’ client account, they do not belong to the company. Question submitted February 2018

More Pressing Questions

Search

Articles Archive