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Do RTM and share-of-freehold companies need an accountant?

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No law requires a residents’ company to use an accountant. The directors have to keep accounting records, prepare the accounts, approve and sign them, and file them. A small company is also exempt from audit, but members holding 10% can require one.

What the directors must do themselves

  • Keep adequate accounting records (Companies Act 2006, section 386). They must show and explain the company’s transactions and show its financial position with reasonable accuracy at any time. That means day-to-day entries of all money received and spent, and a record of its assets and liabilities.
  • Prepare accounts for each financial year (section 394). The duty is on the directors of every company.
  • Approve the accounts as a board and have a director sign the balance sheet on its behalf (section 414).
  • File them with Companies House, as GOV.UK guidance requires of every limited company.

Nothing in those sections says a qualified person has to be involved. An accountant is someone the directors may choose to use, not a legal requirement.

What about an audit?

A company that qualifies as a small company for the year is exempt from audit (section 477). The exemption doesn’t apply to public companies or to a few regulated kinds of business such as banks and insurers (section 478), which a resident-run building company isn’t.

There is one catch. Section 476 lets members force an audit. Notice has to come from members representing at least 10% of the issued share capital, or, if the company has no share capital (as with a company limited by guarantee), at least 10% in number of the members. The notice can’t be given before the financial year it relates to, and has to be given at least one month before that year ends. In a building with ten flats, a single member is 10% of the members.

When an accountant is worth considering

  • The company has income of its own, such as ground rent or fees, and the directors aren’t confident about the tax treatment.
  • The directors aren’t comfortable presenting service charge trust money in the accounts. The ICAEW’s technical guidance says this money shouldn’t be shown as an asset of the company, but accepts that how the transactions appear in the profit and loss account is unresolved, so accountants differ.
  • Your lease or articles say who must prepare or certify the accounts. Check them, because some leases deal with this.
  • A member has asked for an audit, which does need a registered auditor.

A middle route is to prepare the accounts yourselves and ask an accountant for a one-off review. Whatever you choose, the directors stay responsible for the accounts and for filing them on time.

This is general information, not legal or accounting advice.

How Tiny Freeholder helps

Tiny Freeholder keeps the day-to-day records the Act requires, with every receipt and payment entered and categorised. It prepares the company’s micro-entity accounts and its company tax return from them, with service charge money treated as trust money. The directors approve the accounts in the app, and the signed record is kept.

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