Summary Solicitors' Accounts (High distinction 94%)

Solicitor’s Accounts

The key rules to focus on

 Rule 2.1 – Definition of client money
 Rule 2.3 – Receiving client money –

 Distinguish client money from firm’s own money (and money not regulated
by SRA) Weston v The Law Society (1998)- there is a duty of stewardship
in relation to client money

 Rule 4.2 – Mixed receipts
 Rule 4.3 – Transfers of client money for costs
 Rule 5 – withdrawals of client money
 Rule 7 – Interest
 Rule 8.1 – Ledgers and entries
 Rule 11- third party managed accounts: money is not held by the solicitor or
the firm but by a third party page 103
 Code of conduct principles

 Principle 1- upholds the constitutional principle of the rule of law and
administration of justice
 Principle 2- upholds trust and public confidence in the profession
 Principle 3- independence
 Principle 4- honesty
 Principle 5- integrity
 Principle 6- encourage equality, diversity and inclusion
 Principle 7- acting in the best interests of each client

, Client ledger

 When carrying on the balance following a finished ledger sheet, you
need to make sure you remember to put the client name and matter at
the top again.
 Entry description on client ledger: Balance
 Remember to use the date from the bottom of the last page.


Paying a disbursement:

 If you are passing official copies on without comment, this IS a disbursement
and not taxed
 If it is not a disbursement = TAXABLE SUPPLY- DR entry on business side
which is then added to the next VAT entry

Taxable supply example:
Page 132- shows ledger for taxable supply

Client: Bartok
Issue: purchase

Date Details Business account Client account
DR CR BAL DR CR BAL
May
1 Mining search 10 10DR
(taxable supply)
2
Local land charges 10 20DR
search(TREATED
AS
30 DISBURSEMENT) 300 320DR

Profit costs 382DR
VAT on £310 62


Passing on the VAT:

AGENCY-
 Invoice is addressed to the client it is treated as made to the client
 Firm acts as the agent passing on the money to the client
 Send the suppliers tax invoice to the client
 When paid using the agency method- pay from client account if sufficient
funds or business if not sufficient funds
 SEND THEM THIS INVOICE

PRINCIPAL-
 Invoice addressed to the firm- treated as made to the firm

,  HAS TO BE PAID FROM BUSINESS ACCOUNT
 When you deliver your bill of professional charges- thus you send an invoice
to him for your charges of the VAT
 Bill client for profit costs and the disbursements and the VAT on those




Passing on the VAT- supply treated as made to the firm (P method)
 Firm can treat this supply as input, use business money to pay the invoice
and tax
 Firm them resupplies the item to the client for the same price- charging the
client the output tax (firm professional charges and disbursements)


Distinction between agency method and principal method of paying vat

Principal: when the invoice is addressed to the firm- firm MUST pay the VAT out of their
business account, so In the client ledger you enter DR profit costs in business section and
then make a note of the vat due in the details. DR entry in the HMRC account for the
business.
When the firm sends out its bill- CR business section hmrc account

Agency: when the invoice addressed to the client do not distinguish VAT in the account, no
entry on firms HMRC account- all combined



When you deliver your bill for professional charges




You are acting for Anita Desai who is selling her flat, 2 Forest View, and buying a house,
The Old Vicarage. On 2 June you need to pay the following invoices:

 An invoice for the estate agent’s fees on 2 Forest View of £2,000 plus VAT. The
invoice is addressed to Anita.