In recent years, many flat owners have taken a more hands-on approach to managing their properties by setting up a Right to Manage (RTM) or flat management company. This approach empowers residents to take control of the day-to-day management and upkeep of their property, ensuring their home is maintained to their standards. But what exactly is a Right to Manage company, and how does it work? In this blog post, we'll explore the basics of setting up and running an RTM company, as well as the tax implications you should be aware of.
What is a Right to Manage or Flat Management Company?
A Right to Manage (RTM) company is a type of limited company set up by residents of a property—often a block of flats—to take over the management of the building from the landlord. This gives the residents collective control over the property’s management, including tasks like maintenance, service charges, and ensuring compliance with relevant regulations.
Setting Up a Right to Manage Company
Establishing an RTM company involves following the standard procedure for setting up a private limited company in the UK. This process includes:
Choosing a Company Name: The name must be unique and comply with the naming rules set out by Companies House.
Registering the Company: You’ll need to provide details such as the company’s registered address, the directors, and the shareholders (usually the leaseholders). This can be done online via the Companies House website.
Drafting the Articles of Association: These are the rules that govern how the company will be run. For an RTM company, it's crucial that the articles of association are drafted in a way that reflects the company’s purpose of property management.
For detailed guidance on setting up an RTM company, the Leasehold Advisory Service provides comprehensive advice, including how to deal with the existing landlord.
Running the Right to Manage Company
Once the company is set up, it’s time to get to work managing the property. All directors, typically the residents, have legal responsibilities to ensure the company is run properly. This includes:
Filing Requirements: You must send specific updates to Companies House whenever there are changes to the company, such as adding or removing directors.
Annual Accounts: Every year, the company’s financial accounts must be prepared and submitted to Companies House.
Confirmation Statement: This document, previously known as the annual return, must be filed annually to confirm the information held by Companies House is correct.
Tax Considerations for the RTM Company
One of the key aspects of running an RTM company is understanding the tax obligations. The company must submit a Company Tax Return to HM Revenue & Customs (HMRC) within 12 months of the end of its first financial year. However, in some cases, HMRC may treat the company as dormant for tax purposes. This could happen if the company:
Only manages the property for the benefit of shareholders and does not engage in any profit-making activities.
Does not pay Corporation Tax exceeding £100 in a year.
Does not earn income from the property or pay dividends to shareholders.
If HMRC decides to treat your company as dormant, they will notify you in writing, and you will not need to submit Company Tax Returns for subsequent years unless the company begins engaging in activities that generate taxable income.
When You Must Always File a Company Tax Return
There are situations where an RTM company must file a Company Tax Return every year, regardless of HMRC’s previous notifications. This includes instances where the company:
Starts making a profit.
Earns income from land or other sources.
Pays dividends or other taxable payments to shareholders.
Owns assets that could result in a chargeable gain if sold.
If any of these activities occur, the company must resume filing Company Tax Returns annually.
Conclusion
Setting up a Right to Manage or flat management company is a powerful way for residents to take control of their living environment. By following the proper procedures for setting up and running the company, and staying on top of tax obligations, you can ensure the smooth and efficient management of your property. At Busy Bee Accountancy, we’re here to help with all aspects of managing your RTM company, from registration and compliance to tax planning and filing. Get in touch with us today to find out how we can assist you in making the most of your Right to Manage company.
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