Tax & Service Charge

[Maxen Wledig]

Where the lessees of a block of flats form a private limited company (or an ind & prov. society) to buy the freehold and managr the flats, is the company liable to pay corporation tax on the money received as service charge ?
This is money held on trust and not the property of the company, it remains the property of the lessees who presumably have paid tax on it as part of their income.

[jeffrey]

No. HMRC treats service charge income as equal to service charge outgoings. Although the former is 'Income from land' and therefore in theory liable to tax, the latter is all deductible. The only taxable f/r income elements are:
a. ground rent (whether or not collected); and
b. interest earned from deposit accounts.

[Maxen Wledig]

Thank you for clarifying the position relating to Service charges and corpoation tax

[Telometer]

Technically, Jeffrey:

1. This is NOT income from land. (Since 1998 when "new" Schedule A was introduced.)
2. In fact, this is not income at all. It is money received that is held on trust - s42 LTA87 applying. Hence it represents an increase in the cash balance, and an increase in the creditor.
3. Hence any interest received on investment bank accounts is subject to tax at the rate applicable to trusts.

http://www.hmrc.gov.uk/manuals/pimmanual/pim1070.htm