This point often causes great confusion as they look very similar and, indeed, if constructed correctly, a single set of accounts can be both company accounts AND service charge accounts.
The difference between the two is merely in the laws that each has to comply with.
Service Charge Accounts.
Service charge accounts are designed to fulfil the obligations of Sections 21 and 21A of the landlord and tenants act 1985 which states as follows:
Section 21: Summary of the service charge costs. Leaseholders have the right to request a summary of service charge expenditures
Section 21A: If section 21 is breached, the tenant might withhold the payment of the service charge.
This was expanded on through section 152 of the Commonhold and Leasehold reform act 2002
Section 152: Amendments to landlord and tenant act 1985 section 21and 21A requiring leaseholders to be given:
- Annual income and expenditure accounts/statements.
- Balance sheet/balancing statements.
- provided within six months of year end.
- accompanied by a qualified accountant report.
In cases where a residents management company (or RTM, RTE Company) produces the accounts, then the provisions of the Companies Act 2006 ALSO need to be fulfilled.
A company must file accounts every year and this must include the following
- a profit and loss account.
- a balance sheet.
- a director’s report.
You can see the similarities so it is not difficult to construct a set of accounts that fulfils the requirements of all of the above-stated legislation.