Accounts that separate two things that look alike
An agency's accounts have to keep apart the money it earns and the money it merely holds. That sounds obvious and it is the thing most often got wrong, because the bank statement shows both flowing through the same business.
There are three independent reasons client money is not yours. First, the statutory trust: EAA 1979 s.13 holds clients' money on trust for the person entitled to call for it, or, where received as stakeholder, for whoever becomes entitled on the relevant event. In Scotland s.13(2) holds it as agent instead. Second, the asset definition: money held on trust for another is not a resource you control, so it is not your asset. Third, FRS 102 23.36 to 23.37, which make you an agent rather than a principal and confine your revenue to your commission.
The new Section 23, and what it changes
For periods beginning on or after 1 January 2026, FRS 102 Section 23 is a rewritten standard based on IFRS 15. The five-step model applies to agency income like any other: identify the contract, identify the performance obligations in it, determine and allocate the transaction price, and recognise revenue as each obligation is satisfied.
For most agencies the practical effects are three. Management fees recognise over the management period rather than on invoice. Tenant-find fees recognise at the point the tenancy is secured. And renewal commissions need a real answer to whether they are a separate obligation or a material right granted in the original contract — a question the old standard let you avoid.
VAT: your commission is standard-rated
Schedule 9 Group 1 exempts the grant of an interest in or right over land. An agent grants no such interest; it supplies services, and HMRC treats the engagement as a single supply of services normally to the seller, with a basic tax point when the work for the principal is completed. Group 5, the finance exemption, does not help either — item 5 covers intermediary services in relation to financial transactions, and a land sale is not one of them.
Two exceptions are real. Mortgage introductions can be exempt, because a loan is a financial transaction. Insurance introductions can be exempt under Group 2 — but where insurance is supplied alongside your other services, which is the letting agent's situation exactly, legal notes (3) to (5) require a written disclosure document stating the premium and any other connected amount the customer must pay, given at or before the time the insurance is arranged. No document, no exemption: the commission is standard-rated.
One commercially useful point about your landlords. Your fee is standard-rated whether the property is residential or opted commercial. What differs is their recovery: a residential landlord making exempt supplies generally cannot recover the VAT on your fee, so it is a real 20% cost to them, while an opted commercial landlord normally can. That asymmetry is worth understanding before a fee conversation, not after.
Capital allowances on a fit-out
Computers, desks, signage and shop-fit furniture are main-pool plant, and the Annual Investment Allowance of £1,000,000 is permanent. But a fit-out's lighting, wiring, heating and air conditioning are integral features in the 6% special rate pool under CAA 2001 s.33A(5), and that is where the money gets stuck. The main pool writing down allowance fell from 18% to 14% on 1 April 2026 for corporation tax and 6 April for income tax, which makes pointing the AIA at special-rate spend first more valuable than it used to be, not less.
Common questions
Is our turnover the rent we collect, or just our commission?
Just your commission, and this is the single most common error in agency accounts. FRS 102 23.36 requires you to determine whether you promise to provide the service yourself, making you a principal, or to arrange for another party to provide it, making you an agent. 23.37 makes the test control: whether you control the specified good or service before it transfers to the customer. A lettings agency collecting rent controls nothing — the rent is the landlord's income passing through your client account. It is not your revenue and it should never appear in your turnover. The same reasoning applies to contractor repairs, referencing and inventories arranged on the landlord's behalf: only your margin is revenue.
Do we recognise sales commission on exchange or on completion?
It depends on your terms of business, and that is the honest answer rather than a dodge. FRS 102 does not contain a sector rule, and neither the FRC nor HMRC has published anything fixing a single date for estate agency commission. What the standard gives is a framework: 23.78 to 23.80 ask whether control transfers over time or at a point in time, decided at contract inception, and 23.85 onwards lists the indicators — including whether the entity has a present right to payment. What decides it in practice is your contract, which the law requires to be explicit anyway: EAA 1979 s.18 requires you to give the client, before they are committed, particulars of the circumstances in which they become liable to pay. Sole agency with commission due on completion recognises on completion. Commission earned on exchange recognises on exchange.
What changed in FRS 102 on 1 January 2026?
Section 23 was completely rewritten, and Section 20 changed too. The Periodic Review 2024 replaced the old revenue section with Section 23 Revenue from Contracts with Customers, based on IFRS 15 principles, effective for periods beginning on or after 1 January 2026 with early application permitted. Transition is either fully retrospective or modified retrospective. The five-step model now applies: identify the contract, identify the performance obligations, determine the transaction price, allocate it, and recognise revenue as each obligation is satisfied. Separately, Section 20 brings operating leases on balance sheet for lessees — which affects every agency with a high-street office lease and changes what your balance sheet looks like to a lender.
How should management fees and renewal commissions be treated?
Differently from each other, and the distinction is new enough to be worth checking. A management fee is a performance obligation satisfied over time — FRS 102 23.81 covers the case where the customer simultaneously receives and consumes the benefit as you perform — so it is recognised across the management period rather than when invoiced. A tenant-find or let-only fee is a point-in-time obligation satisfied when the tenancy is secured. Renewal commissions are the genuinely difficult one: whether the renewal is a separate performance obligation or a material right granted in the original contract. Section 23 has explicit requirements on non-refundable upfront fees and customer options at 23.29 to 23.35, and that is where the answer lives.
Is a referral fee we pay a disbursement?
Almost never, and neither are most of the things agencies treat as disbursements. HMRC's eight conditions, set out in VTAXPER39000, must all be met — including condition two, that the client and not the agent used the goods or services. Revenue and Customs Brief 6 of 2020, following the Brabners case, sharpened the test: a fee is not a disbursement where you use the output in making your own supply of professional services, because it is then a cost component of that supply. Portal advertising fails immediately — Rightmove supplies you, not the seller. Tenant referencing is directly analogous to Brabners, because you use the report to form your own recommendation. An EPC can be a disbursement, but only if the assessor contracts with the seller and you pay as authorised agent. Buy it in your own name and it is a recharge.
What is the dividend position for an agency company now?
Worse than it was, and worth re-running. Dividend rates rose on 6 April 2026: the ordinary rate to 10.75% from 8.75%, the upper rate to 35.75% from 33.75%, with the additional rate unchanged at 39.35%. The dividend allowance is £500. Employer National Insurance is 15% above a £5,000 secondary threshold, and the Employment Allowance is £10,500 with the old £100,000 prior-year-liability cap removed — though a company whose sole director is its only employee still cannot claim it. Corporation tax is unchanged at 19% up to £50,000 and 25% above £250,000, with marginal relief between and the limits divided by the number of associated companies plus one. For a multi-branch group held through several companies, that division is the number to check first.