Harringay, Haringey - So Good they Spelt it Twice!
Sink Fund etc
We've lived in our conversion flat for over 20 years, a few years back we bought the freehold of the building with our neighbours and set up a Ltd company to run it. There are 3 flats in the building and in the past we have dealt repairs etc when they were needed. One of the flats changed ownership this year and our new neighbour wants a lot of work done. I'd like to suggest that we create some sort of sink fund, so it is easier for us to afford these works over time.
I just wondered how others on the board manage this? The company we set up is inactive but each flat owner owes one share it in, would we have to make this active if we set up a bank account?
Replies to This Discussion
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Permalink Reply by Bob Lindsay-Smith on
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We have done this since 2000 on a similar freehold. It has helped to be able to spread the cost of large repairs a bit, and to pay the insurance from the bank account outright each year (instead of paying exorbitant interest rates if doing it monthly). We have never managed to build up a sinking fund though. This is partly because most of us are a bit pushed to find even the regular payments sufficient to cover normal outgoings. Another snag is that Corporation Tax is chargeable at 19% even on a small company's 'profit', which is the increase in bank balance from one accounting year end to the next. Our accountant had to explain that to us. It may be best for that reason, if you can, to start the thing up with a big input of cash for a sinking fund, instead of building it up gradually. You do need an accountant, especially when starting up. Oh yes, you would have to make the Company active, and thereafter submit (a) an annual return and (b) accounts to Companies House. One final snag is the rigmarole that banks put you through to open a business account!
But I think it's worth it. And it forces you to keep track of expenses and to discuss what should be done.
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