Service Charge Accounting in 2025: What Property Owners and Managers Need to Know

If you’ve ever owned a leasehold flat, run a property management company, or just glanced at your annual building statement with a raised eyebrow, you’ve probably come across the phrase “service charge accounting.” It might not sound glamorous, but in 2025, it’s more important than ever — especially with rising costs, new transparency rules, and leaseholders asking tougher questions about where their money’s going.

So what exactly is service charge accounting? Why does it matter? And how do you stay on the right side of the law — and your tenants?

What Is Service Charge Accounting?

Service charge accounting is the process of recording, reporting, and reconciling the money collected from leaseholders (or tenants) to cover shared costs in a building — like cleaning, maintenance, security, insurance, and repairs.

Think of it like a joint bank account for your building. Everyone chips in, and someone has to keep tabs on where the money goes — that’s where proper service charge accounting comes in.

Who’s Responsible?

In most cases, it’s the freeholder, managing agent, or a residents’ management company (RMC) that takes charge of collecting and managing the service charge. They're also the ones who must provide transparent accounts — and that’s where things can get messy if the books aren’t kept up to scratch.

Why Is It a Big Deal in 2025?

Several reasons. For starters, leaseholders are more informed and more vocal. There’s growing pressure on managing agents and landlords to justify every pound spent. But more importantly, there are legal and regulatory shifts in 2025 that make getting service charge accounting right more crucial than ever:

1. Updated RICS Professional Standards

The Royal Institution of Chartered Surveyors (RICS) updated its Service Charge Residential Management Code in early 2025. It sets out best practices — and while not law, it’s taken seriously by tribunals.

2. Mandatory Reporting for Larger Developments

As of April 2025, buildings with more than 25 units must now submit annual service charge summaries to leaseholders in a prescribed format, including digital copies with breakdowns by category.

3. Inflation and Rising Costs

With inflation still hovering around 3.1% and service costs up nearly 6% year-on-year according to the latest ONS data, disputes over charges are becoming more common.

What Should Good Service Charge Accounting Include?

Transparency is the name of the game. A well-kept set of service charge accounts should clearly show:

• Income: What’s been collected from leaseholders
• Expenditure: What’s been spent (broken down by category)
• Accruals and prepayments: Costs incurred but not yet paid (or paid in advance)
• Reserve funds: Money set aside for long-term repairs or upgrades
• Balance carried forward: What’s left in the pot at the end of the year

It’s not enough to just hand over a spreadsheet — leaseholders want to see receipts, quotes, and explanations.

Accrual vs. Cash Accounting — What’s the Difference?

In 2025, accrual accounting is increasingly the norm for service charges — and RICS recommends it. This means costs are recorded when they’re incurred, not when they’re paid. It gives a more accurate picture of building expenses.

Cash accounting, by contrast, only shows money when it moves in or out — which can be misleading in years with major repairs.

Do You Need to Get the Accounts Audited?

Not always. If the lease or management agreement doesn’t require it, then a certified summary from an accountant may be enough. But in larger or more complex developments, it’s often wise to bring in an independent chartered accountant to prepare or review the service charge accounts — especially if tensions are running high among residents.

Common Mistakes to Avoid

• Missing deadlines: Service charge summaries must be sent to leaseholders within 6 months of the financial year-end
• Poor record-keeping: No one wants to chase a receipt from 18 months ago
• Lack of explanation: Just listing “Repairs – £12,000” doesn’t cut it anymore
• Not using reserve funds properly: Tapping into sinking funds for short-term repairs can land you in hot water

The Bottom Line

Service charge accounting isn’t just paperwork — it’s about trust, compliance, and good management. When handled properly, it keeps buildings running smoothly, avoids legal disputes, and helps everyone feel confident that their money’s being well spent.

In 2025, with new rules and rising expectations, sloppy service charge records are a shortcut to complaints, tribunals, or worse. But with a little care, the right software, and perhaps some expert help, it’s entirely manageable.

So whether you’re a landlord, property manager, or leaseholder on a residents’ committee, now’s the time to get your service charge accounting in order. Because in the world of communal living, clear books make good neighbours.