What you need

These resources guide you through the steps to plan, agree and run your Local Management Agreement.

Money

Where it comes from
Most of the services likely to run under Local Management Agreements are funded by the service and management charges paid by residents. Some (for example, repairs and some security measures) are paid for from tenants’ rents. Income for non-housing services may also come from the Council Tax or fees and charges paid by users (for example, community room bookings or allotment fees).

To run a Local Management Agreement successfully, you must understand where the money currently comes from, check whether this will still be available, and look at other alternative sources of funding.

Changes to rents and service charges are subject to the Government’s rules, which currently limit annual increases to:

• The rate of retail price inflation plus 0.5% plus £2 per week for rents
• The rate of retail price inflation plus 0.5% for service charges.

You might be able to get a grant to support your Local Management Agreement. See www.governmentfunding.org.uk for details and automatic updates on all Government grants.

Where it goes
Expenditure will obviously mainly go on the direct costs of providing services (labour, materials and so on). But don’t forget the indirect costs (for example, monitoring, supervision, administration and phone calls). These need to be built into the annual budget too.

Spending on large pieces of equipment (for example, a lawn mower) can be treated as capital spending – this means the cost can be spread over the life of the item, say, five years.

Service charges can also include an allowance for future replacement of an item – this is called depreciation.

The Council will help and advise residents on managing these different types of spending.

The Council must take into account the costs of negotiating, setting up and operating Local Management Agreements when setting its budgets. The authority-wide and local Tenants’ Compacts should set out the nature and level of support for this.

Surpluses and losses
The Council operates variable service charges, which means that losses or surpluses in one year can be passed onto residents in the following year, as higher or lower charges.

Residents can though choose to use any surpluses for the benefit of the area (for example, to pay for landscaping improvements). There are some legal restrictions on what you can use surpluses from rents and service charges for – the Council will advise you about these.

Keeping track
To keep on top of the finances for a Local Management Agreement, you need:

• An annual budget (a forecast of how much you expect to collect and spend in the coming year, broken down into key categories). See ‘Budget and accounts’

• Management accounts (regular [monthly or quarterly] updates on actual income and spending, compared to the budget). See ‘Budget and accounts’

• Annual accounts (an annual financial statement showing the actual income and spending for the whole year – produced within three months of the end of each financial year). See ‘Budget and accounts’

You will need to keep records and copies of invoices, and receipts to complete these accounts, and allow them to be checked and audited.

VAT (Value Added Tax)
Where residents provide services themselves under a Local Management Agreement, they do so on behalf of the Council. This means that no VAT is payable for the service.

VAT-registered contractors or suppliers providing services under a Local Management Agreement obviously have to charge VAT. So the allowances the Council pays to residents under the Local Management Agreement must include an amount for VAT. The residents’ group will then pay VAT on behalf of the Council as its agent, so they must tell the Council how much they have paid out in VAT. The Council can then reclaim this from HM Customs and Excise in its regular VAT return.

Spending on supplies and materials will always attract VAT, unless it is on exempt or zero-rated items.

This is complicated – so the Council and its VAT advisors will help residents get this right for each Local Management Agreement.