Accountants for Right to manage Ltd company 

Accountants for Right to manage Ltd company (RTM)

When a leaseholder has the Right to Manage, it is an opportunity that comes with very real responsibilities as they take over the management of the property.

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DEFINING RIGHT TO MANAGE?

The Right to Manage often abbreviated as RTM is a relatively new legislation having only been introduced in 2002 via the Commonhold and Leasehold Reform Act. The act gives leaseholders the legal authority that supersedes that of the landlord in setting up a right to manage company, which manages the property on their behalf.

For leaseholders, this statutory right is a big win. The leaseholder does not have to obtain court orders, prove any mismanagement or get the landlord’s approval to exercise the statutory right. Still, it is a decision that needs not be taken lightly since it means the leaseholder now has very real responsibilities.

While the procedure for getting the RTM is pretty straight forward, the criteria and qualifying rules are quite complicated. As such, our recommendation is that any leaseholder who wishes to take advantage of the right read the Lease Advisory Service guidelines (LEASE), for a more detailed look into the rules and regulations.

Once the Right To Manage Company has been formed, one of the directors will be in charge of all financial aspects of the new company. This could be a daunting task for any director with limited accounting experience or anyone without a financial background. The following are some practical tips a director should follow to get up to speed and perform their obligations.

Invest in accounting software
1. Unless you are running the simplest and most basic RTM Company, it is always recommended to get an accounting software package and to maintain and record accounting transactions. The are several inexpensive and user-friendly software packages that you could pick up that would be easy to use even for a director with a non-financial background. Accounting software will come in really handy, particularly when you need to keep track of service charge debtors given that bespoke or manual systems made in excel are not the most reliable for such type of work.

2. Implement financial controls as soon as you are appointed
It is critical to put in place financial controls from day one. This will ensure that at a minimum:

a) Bank accounts are reconciled to the cashbook at least once a month
b) There is dual authorization or two cheque signatories for online banking payments
c) Systems for the authorization of expenditures that have been put in place are not dependent on one person d) There is a monthly review of service charge debtors

All these duties call for commitment and discipline if the director is to ensure that they are done. Discipline is important given that the time needed to regularize any bookkeeping tasks tends to increase exponentially the more the task is not performed on the regular.

3. Be aware of Income that may result in tax obligations
The company is likely to have Corporation Tax liability for any income other than service charges that it earns. Income the company makes from activities such as the issue of laundry tokens or renting out parking spaces is income that may be liable to Corporation Tax. Such income will need to be declared on the

Corporation Tax return and be properly accounted for. The tax will be due nine months after the end of the financial year. Viewing this income as incidental income which you need not declare is a common mistake. However, this could be an expensive mistake as the HMRC can impose painful penalties and interest charges once the income comes to light.