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Set Up and Run Flat Management Company

A change in regulations has seen an increase in property management companies (e.g. in blocks of flats). Check how to set up a flat management company and run it 'legally' on behalf of the residents.

Step 1: Setting Up the Limited Company

A group of residents would need to set up a limited company to run a flat management company.

Running this type of joint arrangement is often called a Right to Manage in the United Kingdom.

Flat management companies ‘store’ the freehold interest for the residents of a property, such as a converted house or a block of flats. The setup can provide useful facilities in communal areas of the building.

As a rule, the residents become directors and shareholders of the flat management company. It would be unusual for every resident to become a director in a large property. Even so, most of them would usually hold at least one share.

You must follow the same recognised process as you would during the formation of a private limited company.

Note: The Leasehold Advisory Service outlines leaseholders Right to Manage a building containing flats and take over the management of the building.

Step 2: Running the Limited Company

There will be legal obligations for all residents who agree to be directors of the company. In fact, you would have the same responsibilities as anyone who is running a business as a limited company.

As such, you would need to send Companies House:

Note: The Scottish government guidance explains property management law and property factor registration in Scotland.

Step 3: Tax Returns for the Limited Company

Flat management companies will need to send a Company Tax Return to HM Revenue and Customs. HMRC must receive it no later than twelve (12) months after the end of the first financial year.

Note: HMRC may then decide to treat the property management business as a ‘dormant’ company. If so, HMRC would not expect Company Tax Returns from the company for later years.

As a rule, HM Revenue and Customs would only give this instruction if the flat management company does not:

  • Appoint directors who are not leaseholders or residents in its articles of association.
  • Carries out anything other than the management of the property in the interests of its shareholders.
  • Make a profit or make payments that would be liable for taxation.
  • Need to pay more than £100 in Corporation Tax in any year.
  • Own any assets that it may dispose of to realise a chargeable gain. Read more on Corporation Tax when you sell business assets.
  • Pay out dividends or any other payments from company profits to its shareholders.
  • Receive any income from land rental.

Note: HMRC would write to the company with Right to Manage only if none of these occurred and they decide to treat it as dormant.

Sending Compulsory Tax Returns

The flat management company ‘must’ send a Company Tax Return every year in circumstances where:

  • It does not receive HMRC confirmation that they are treating the Right to Manage company as dormant.
  • The property management company starts to do anything in the list above. This would apply even if HM Revenue and Customs had treated the company as dormant on a previous occasion.

How to Set up and Run a Property Management Business in United Kingdom