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Lecture notes

Solicitors Accounts Revision Notes

Who do the SRA Accounts Rules apply to? The SRA Accounts Rules apply to authorised bodies: Rule 1. An authorised body means (a) a body that has been authorised by the SRA to practise as a licensed body or a recognised body; or (b) a sole practitioner’s practice that has been authorised by the SRA as a recognised sole practice. So the rules apply when firms receive or deal with money and therefore firms must have systems and controls in place to ensure compliance with the rules. Client Money v Office Money CLIENT MONEY Rule 2.1 SRA Accounts Rules Client money is money held or received by [the firm]: (a) Relating to regulated services delivered by you to a client; Any payment re the regulated services will therefore be client money. If the firm then doesn’t use e.g. the fee (e.g. client decides not to proceed with purchase so searches rendered unnecessary) then hold for client. (b) On behalf of a third party in relation to regulated services delivered by you (such as money held as agent, stakeholder or held to the sender’s order) E.g. deposit received from buyer’s solicitor. (c) As a trustee or as the holder of a specified office or appointment, such as donee of a power of attorney, Court of Protection deputy or trustee of an occupational pension scheme; (d) In respect of your fees and any unpaid disbursements if held or received prior to delivery of a bill for the same Fees  your own charges or profit costs (includes any VAT thereon) Disbursements  any costs or expenses paid or to be paid to a third party not including e.g. office expense and courier fees [these should be factored into hourly rate] So e.g. payment made re expert witnesses in court proceedings. ** unpaid disbursements only: i.e. money held or received in relation to a paid disbursement is not client money** I.e. once a bill has been delivered – then it stops being client money/ EXAMPLES OF CLIENT MONEY:  Money received from client “on account of costs”. Once a solicitor has been instructed, they will usually ask the client to provide money to cover the likely costs of a matter – e.g. to cover the search fees in a property transaction. As such fees will yet have been paid for by the solicitor, the money when received is client money.  Money received in respect of unpaid costs or expenses. For example, SDLT, LR fees, court fees which are expected to be paid but have not yet been paid. SOLICITORS ACCOUNTS o E.g. money received from the client in respect of a company search fee. The solicitor has incurred the search fee and the firm has received the invoice, but the invoice has not yet been paid by the solicitor’s practice. This is an unpaid disbursement.  Mortgage money received from a lender on behalf of the client.  Client damages received by a firm in a personal injury matter.  Money held to pay nursing home fees for a client where a solicitor has been appointed as Court of Protection deputy.  Money for the firm’s fees, and any unpaid experts fees, that have been received before a bill has been sent to the client for those fees. WHERE SHOULD CLIENT MONEY BE PLACED: CLIENT ACCOUNTS Rule 4.1 Client money has to be kept separate from money belonging to the authorised body.  Client money must therefore be held by the firm on behalf of client’s in a separate bank account: the client account.  Client money must be paid into the client account promptly (rule 2.3) UNLESS one of the exceptions applies – e.g. client money represents legal aid payments for your costs or you agree in the individual circumstances an alternative arrangement in writing with the client.  For the purposes of recording accounting transactions, the ledger relating to the client account is referred to as client cash.  Law firms usually have a general client account in which it holds the money of various clients but can also open designated client accounts in which to hold each client’s money if it wishes too (probably impracticable). o Whether a firm has one or several client accounts, the names of these accounts must include the name of the law firm and the word client: rule 3.2(b). o The client account should be held in a bank or building society account in England and Wales: rule 3.1  Total amount ‘owed’ by a law firm to all its clients should equal the amount of money held in the clients accounts. Note sometimes money may be received which relate to the client but not to the work that the firm has done/is doing for the client: e.g. a cheque payable to the client is received from a third party to forward on to the client. In that case it is good practice to make a note in the client’s ledger recording both the receipt of and the handing over of the cheque. ACCOUNTING RECORDS OF CLIENT MONEY Rule 8 specifies how accounts must be kept: e.g. obtaining bank/building society statements at least every five weeks and carrying out reconciliations between the statements and the firm’s own records (rule 8.2. and 8.3) OFFICE MONEY: Previous SRA Accounts rules had a defined concept of “office money” which has been removed under new code. However, each firm will have at least one bank account from which it will run its business – this will be referred to as the “office account” and the ledger relating to the office account will be referred to as “office cash”. Can assume that money held in solicitors accounts which does not fall within the definition of client money above will be office money. Key rule: client money may not be mixed with office money – they must be kept separate. EXAMPLES OF OFFICE MONEY: SOLICITORS ACCOUNTS  Money held or received in connection with running the firm;  Monies received after firm has paid for costs/expenses (no bill delivered

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