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Apartments - Service Charge & Potential Income Tax Issues


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Hi - not strictly a lettings issue but best home I could find...

 

We are a block of 24 apartments that pay an annual service charge to a management company to look after communal areas. A few of the residents are unhappy with the excessive cost of things like cleaning and the poor workmanship. Some of us are thinking about clubbing together to take this on ourselves as we could do a better job for less.

 

As only a few apartments would club together we are reluctant to take anything on as a freebie. We were thinking that those who have contributed could then be offered a 'discount' on future service charge bills. Our thinking is that we then wouldnt have to pay income tax on the value of work done.

 

Everyone would then benefit as overall the amount of service charge we all pay will reduce, but those who have contributed to the upkeep receive an extra discount in recognitiion of this. The issue we just have is would the discount be treated as income? If so we will probably have to increase our costs by 20% to allow for this. It would still be a significant overall saving but obviously not as much as before.

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I would tread very carefully on this, I live in flats and we pay a service charge for cleaning etc. We raised the poor service we received gardens we pay weekly, last year they came 4 times for a total of 45mins. We raised the possibility of taking it over ourselves, looked into and suddenly it opens up a minefield of problems, liability insurance, collecting money, paying money out the money, who would be responsible for it a;so if people left and flats remained empty you would have to increase the price, also a majority is needed to take it on. However what do you do if say 30% say we aint paying. After we complained the landlords looked at cleaning and agreed it was poor they appointed new cleaners who are better, they have also appointed new gardening/grounds contractors.

We have made an agreement that we report back as to the contractors and it is monitored month by month. I would suggest as a tenants group you meet the management company put your grievances to them see their response. if after that you still feel unhappy contact the Housing Ombudsman, http://www.housing-ombudsman.org.uk/

I know my rights Mr DCA I'm with the CAG......hello hello where you gone Mr DCA8)

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Hi Thanks - i think you have misunderstood slightly. We dont want to get involved in the day to day stuff - the management company we employ would continue to do this, mainly because of the points you raise.

 

What we would like to take on is the gardening and vacuuming of communal areas and nothing more. The management company have budgeted £3,100 for this year but we would just like greater control in being able to do this ourselves (each flat owns 1 share of the company). However those who would get involved can not do this for nothing but we reckon for perhaps £1,000 in terms of time and materials cost. We are just not sure whether the tax man would recognise this as income and therefore be taxable or whether as its just to discount our service charge bill is outside the scope (however those who do not contribute do not receive any discount by the management company)?

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ahhhh right there is nothing to stop you doing it but again you would have to have liability insurance, think if you left a rake out someone trod on it knocked out front teeth, they would sue you or say someone chopped a finger off cutting bushes (extreme I know) , so liability insurance is a must I would expect it to cost about £300 a year. If you are working less than 16 hrs a week (which I expect you would be) then it shouldnt be taken into consideration by Tax Man however just a quick call to tax would soon clear that up remember its just an enquiry they wont want details. Have you thought about setting it up as a social enterprise then you dont get any payment but all money goes back to the project (i.e garden/grounds to improve it further) This could be a way around tax issue, could also become a business in future to do other flats if you wanted to go further with it (this time next year you could all be millionaires LOL). I hope I've helped, we asked around the flats we are in to take it on ourselves but it was a case of moan but not prepared to do anything Good Luck

I know my rights Mr DCA I'm with the CAG......hello hello where you gone Mr DCA8)

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I cant see how it can be classed as income at all. you are working for yourself and not paying yourselves anything!

As for the third party liability thing, no different to any householder that has a third party on his property and they injure themselves due to an incident, such as the rake thing as mentioned above; there is a risk the TP may sue, however they would have to prove negligence, and why they did not they look where they were going ( or a stealth rake, sorry about that ).

Anyway I pressume if you have housholders insurance, that may include TP cover!

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Thanks for the replies.

 

I've been thinking it through and talking about this to a colleague. I think its pretty borderline with HMRC - we are pretty sure that if the sum of the discount exceeds the original service charge then it is clear cut income. I think that as long as we dont 'invoice' the management company and the discount is offered 'voluntarily' then I doubt you would have to pay income tax. As with any company it is up to them to decide what, if any discount they should offer to their customers.

 

Hopefully it would just be viewed as discounting the liability rather than being recognised as income.

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household insurance wont cover it as you are providing a service to others. It is necessary to have liability insurance when providing service, if I say visit you have mopped communal area no warning sign out I slip and break a leg and sue who do I sue the person responsible for mopping, I think for the sake of a max of £300 is it worth the risk, other than that go ahead a great way to make people care about where they live wish we could around here

I know my rights Mr DCA I'm with the CAG......hello hello where you gone Mr DCA8)

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