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TaxRobin
TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 15887
Experience:  International tax
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I live in an apartment block comprising 12 apartments. There

Customer Question

I live in an apartment block comprising 12 apartments. There is a limited company set up as the management company to look after the communal areas. It is owned and controlled by the owners of the apartments and run day to day voluntarily by two owners who are registered as the directors of the company.
We pay a service charge and a small amount into a sinking fund each month. Last year and this year we made a small surplus on the service charge income which we kept in the company. What is the tax implication for this senario? Do we have to pay tax on the surplus and the sinking fund income? or just on any investment income? If it is just on the investment income how do we account for this with HMRC. Last year I completed the tax return online and it automatically calculated the tax due on the surplus and the sinking fund.
Thank you for any help.
Submitted: 4 years ago.
Category: Tax
Expert:  TaxRobin replied 4 years ago.
Hello and thank you for posting your question.
The Flat Management company could be considered dormant for corporation filing. This would last for 5 years (then be looked at again).
Even if dormant, when a flat management company receives service charges which it must hold on trust for its tenants, it will be liable to Income Tax on any interest that arises on that fund. In effect, your company is acting as a trustee and may be required to deliver a tax return to the relevant HMRC Trust Office. If the income is below £1,000 and taxed at source, you won't need to complete a return every year.
Income from service charges for UK properties that's held on trust is chargeable at the standard tax rates.
You really should contact your Corporation Tax Office for advice on if they consider your management company as dormant and to make corrections if needed for the past return.
If you need to look up your office here is the url for the locator:
http://search2.hmrc.gov.uk/kbroker/hmrc/locator/locator.jsp?type=0