How to prepare year-end service charge accounts

Two sets of accounts

A block company usually has two sets of accounts:

• Company accounts, filed at Companies House under the Companies Act 2006.
• Service charge accounts, prepared for leaseholders under the lease. Service charge money is trust money, so it is accounted for separately from the company’s own money.

What the lease requires

Most leases say the service charge accounts must be prepared within a set time after the year end, and certified by an accountant or the landlord. Some require an audit. Follow the lease exactly: an uncertified statement can mean a balancing charge is not yet payable.

What the accounts should show

• Income: on-account payments received, and any other income such as interest.
• Expenditure by heading, matching the budget.
• Reserve fund movements: contributions in, spending out, closing balance.
• Debtors and creditors at the year end.
• Each flat’s share of the actual cost and the resulting surplus or deficit.

Professional guidance for accountants on residential service charge accounts is published by the ICAEW and other bodies.

Leaseholders’ rights

A leaseholder can ask for a written summary of costs and then inspect the receipts and accounts (sections 21 and 22 of the 1985 Act). On Freeholdpilot, every leaseholder can already see the accounts, invoices and approvals, so these requests become rare.

Coming changes

The 2024 Act will introduce standardised service charge accounts and an annual report, expected to start in stages from 2027.