Solicitors Accounts Notes
Chapter 1: SRA Accounts Rules
[Page 17 - PCR Standards and Regulations Handbook]
The SRA’s overarching objective is to “keep client money safe”.
Who do the rules apply to? (Rule 1)
• “authorised bodies”
o I.e. firms regulated by the SRA, and all managers and employees in these
firms
What is client money? (Rule 2)
• Rule 2.1 - money held or received by the firm:
o (a) relating to regulated services delivered by solicitors to a client;
o (b) on behalf of a third party in relation to regulated services delivered by
solicitors (such as money held as agent, stakeholder or held to the sender’s
order);
o (c) as a trustee or as a holder of a specified office or appointment, such as a
donee of a power of attorney, Court of Protection deputy, or trustee of an
occupational pension scheme;
o (d) in respect of legal fees and any unpaid disbursements if held or received
prior to delivery of a bill for the same.
• Examples:
o Money received from the client “on account of costs”
§ i.e. to cover the costs of a matter
o Money received in respect of unpaid costs or expenses
§ e.g. SDLT, land registry fees and court fees which have not yet been
paid
Where should client money be placed?
• Client money should never be placed into the office account, it must be kept in a
separate account (Rule 4.1)
• General rule = “promptly” paid into the firm’s client account (Rule 2.3)
• The general rule need not be observed in the following circumstances:
o Rule 2.2 -> the only money held is in respect of disbursements or solicitors’
legal fees which have not yet been billed, and if the firm is not required to
hold a client account for any other reason, and if the clients have been given
information in advance as to where and how the money will be held
o Rule 2.3(c) -> where there is a written agreement between the solicitors and
the client as to an alternative arrangement for holding the money
o Rule 2.3(a) -> where the monies are held as a trustee or specified office
holder and payment of the monies into a client account would conflict with
rules or regulations relating to the solicitor’s office or appointment
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, o Rule 2.3(b) -> where the client money is payments received from the Legal
Aid Agency in respect of the solicitor’s own costs
• If you receive mixed payments which are due to both accounts, you must promptly
allocate funds (Rule 4.2)
• The client money should be held in a bank or building society account in England and
Wales (Rule 3.1)
• The bank account name should include the firm’s name and the word “client” (Rule
3.2)
When can I pay money out of the client account?
• You cannot allow clients to use the client account as a banking facility (Rule 3.3)
• Payments into and out of the client account must only be in respect of your delivery
of regulated services (rule 3.3)
• Money may only be withdrawn from the client account in the situations listed in Rule
5:
o Rule 5.1(a) – when the money is needed for the purpose for which it is being
held (this could include payment of a disbursement, your fees or damages
due to a third party)
o Rule 5.1(b) – following instructions from the client or from a third party for
whom the money Is held
o Rule 5.1(c) – on the SRA’s prior authorisation
o To pay your costs where you have delivered a bill of costs or other written
notification of costs incurred before removing money from the client
account. The sum removed must exactly equate to the bill of costs.
o Rule 4.2 – “mixed payments” -> where money paid into a client account has
to be removed promptly and paid into the office account
• You must supervise all withdrawals and may only withdraw from a client account if
sufficient funds are held on behalf of that specific client or third party to cover the
payment (Rules 5.2 - 5.3)
• You must account to your client or third party for a fair sum of interest in respect of
any client funds held by you, unless you have come to a different written agreement
with the client or third party (Rule 7)
Client accounting systems and controls
• Rule 8 sets out detailed rules regarding record keeping for the client account
• Full details of the client must be recorded against the account and statements for all
client accounts must be received (Rule 8.2) and reconciled (Rule 8.3) at a minimum
of 5 weekly intervals
What is office money?
• Money held in solicitors accounts which does not fall within the definition of client
money above will be office money
• Definition removed under the new code
• Client money cannot be mixed with business money
• Examples:
o Money sent after the firm has paid for costs/expenses (no bill delivered)
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, If the firm has already paid for costs/expenses, it can pay any money
§
it receives from the client to reimburse the firm for these costs
straight into the office account without having to issue a bill to the
client
§ The client should have been made aware of these costs in compliance
with Rule 8.7 of the Code of Conduct for Solicitors
o Money sent after a bill for the law firm’s fees has been delivered
§ Rule 2.1(d) – if a firm delivers a bill to the client setting out the law
firm’s fees and the client sends money to the firm to settle that bill,
that payment is office money and should be paid into the office
account
o Money sent after a bill for unpaid costs/expenses has been delivered
§ Once a bill has been sent to the client, money received from the client
in full or partial reimbursements is office money
Where should office money be placed?
• Office money should usually be paid into the office account, but there is no specific
rule to this effect
• There are a few occasions where office money may be paid elsewhere
o Rule 6.1 – where money has been paid out in error from the client account
and needs to be replaced -> in this situation, office money is placed into the
client account, and will become client money on payment into the account
When can I pay money out of the office account?
• There is no rule
• Office money is the firm’s money, so the firm is generally entitled to withdraw office
money from the account as it sees fit
• Each firm will have its own rules to protect against fraudulent or mistaken
withdrawal of money
Where should mixed money be placed?
• “mixed cheque” -> where a client sends one cheque to cover several payments, with
some money being office money, and some money being client money
• Rule 4.2 -> promptly allocate the mixed payments to the correct client account or
office account
Compliance with the Rules
• Rule 12 – Accountants’ Reports [Page 21 PCR Standards and Regulations Handbook]
o Rule 12.1 – If you have, at any time during an accounting period, held or
received client money, or operated a joint account or a client’s own account
as signatory, you must:
§ (a) obtain an accountant’s report for that accounting period within six
months at the end of the period; and
§ (b) deliver it to the SRA within six months of the end of the accounting
period if the accountant’s report is qualified to show a failure to
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, comply with these rules, such that money belonging to clients or third
parties is, or has been, or is likely to be placed, at risk
o Rule 12.2 – no requirement to obtain an accountant’s report it:
§ (a) all client money held or received during an accounting period is
money received from the Legal Aid Agency
§ (b) in the accounting period, the statement or passbook balance of
client money does not exceed:
• (i) an average of £10,000; and
• (ii) a maximum of £250,000
o Rule 12.3 – a statement or passbook balance is the total balance of
§ (a) all client accounts
§ (b) any joint accounts and clients’ own accounts
o Rule 12.4 – SRA may require you to produce an accountant’s report if you
cease to operate as an authorised body, or if it is in the public interest
o Rule 12.5 – report must be obtained by a member of one of the chartered
accountancy bodies and works for or is a registered auditor
o Rule 12.6 – SRA can disqualify an accountant:
§ (a) professional misconduct
§ (b) failure to exercise due care and skill
o Rule 12.7 – SRA may specify matters to be incorporated into the terms on
which the accountant is engaged
o Rule 12.8 – must provide information to the accountant
o Rule 12.9 – accountant must complete and sign report in its prescribed form
• Rule 13 – Record Keeping
o Rule 13.1 – must store all accounting records securely and retain these for at
least six years
• SRA Guidance Notes [PCR Standards and Regulations Handbook]:
o 17 – Accountant’s reports and the exemption to obtain one [Page 131]
§ Exemption in Rule 12.2(b) -> exemption will apply where during the
accounting period the average balance on client account does not
exceed £10,000 and the maximum balance does not exceed £250,000
§ Where all money is obtained from the Legal Aid Agency
o 18 – Do I need to operate a client account? [Page 136]
o 19 – Helping you keep accurate client accounting [Page 139]
§ Double entry principle
o 20 - Planning for and completing an accountant’s report [Page 143]
§ Firms may be exempted from the requirement to produce an
accountant’s report if:
• Small amounts of client money are held (an average of
£10,000 and a maximum of £250,000) or the holding or receipt
of money only from the Legal Aid Agency
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, Chapter 2: Client Accounting
Rule 8.1 – Solicitors must keep accurate accounts of client transactions
• (a) record in client ledgers identified by the client’s name and an appropriate
description of the matter to which they relate:
o (i) all receipts and payments which [are] client money on the client side of
the ledger account;
o (ii) all receipts and payments which are not client money and bills of costs
including transactions through the authorised body’s accounts on the
business side of the client ledger account [the office ledger of the client]
Double-entry bookkeeping
• Every entry into an account or ledger requires a corresponding and opposite entry in
a different account or ledger -> every entry is recorded twice in chronological order
with recorded dates
• Three rules
o 1 – A pair of entries is required for every transaction. You will need to make
two separate entries in two separate ledgers or accounts
o 2 – In each pair, one entry must be a CR (credit) and the other must be a DR
(debit) entry
o 3 – Both entries in a pair will remain on the same side of the ledger i.e. both
entries will take place on the office side, or both entries will take place on the
client side
• The total of the balances on the client ledgers must always be equal to the total
balance in the client account
How to write an entry?
1. Write the date that the transaction took place
2. Write the name of the ledger in which you will make the corresponding entry and a
description of the transaction that has taken place
3. Write the sum of money and CR or DR
4. Write the new balance on the account and CR or DR
Basic Transactions
Transaction Example Entries
Money is paid into the client Cheque on account of CR client ledger, DR client
account general costs cash
Money is paid out of the client Paying a disbursement DR client ledger, CR client
account out of client money, that cash
has been previously sent
on account of costs
Money is paid out of the office Paying for a DR office ledger, CR office
account disbursement when there cash
are insufficient funds in
the client account
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