Summary Full Solicitors Accounts LPC Notes

Solicitors
Accounts
2021/22


Complete notes

,Solicitor’s Accounts
Table of Contents
CHAPTER 1: SRA ACCOUNTS RULES........................................................................................................................... 2

CLIENT MONEY................................................................................................................................................................. 2
WHEN SHOULD YOU PAY MONEY RECEIVED FROM A CLIENT INTO OFFICE ACCOUNT?.....................................................................2
WHEN ARE YOU PERMITTED TO PAY OFFICE MONEY INTO THE CLIENT ACCOUNT?.....................................................................2
WHEN SHOULD YOU PAY MONEY RECEIVED FROM A CLIENT INTO THE CLIENT ACCOUNT?...............................................................3
WHEN ARE YOU PERMITTED TO PAY MONEY OUT OF THE CLIENT ACCOUNT?................................................................................3
OTHER RULES.................................................................................................................................................................... 3

CHAPTER 2: CLIENT ACCOUNTING............................................................................................................................. 4

LEDGERS.......................................................................................................................................................................... 4
PROFIT COSTS................................................................................................................................................................... 6
OTHER EXAMPLES.............................................................................................................................................................. 7
DISBURSEMENTS................................................................................................................................................................9
SPLIT PAYMENTS.............................................................................................................................................................. 11
PETTY CASH....................................................................................................................................................................12

CHAPTER 3: THE SRA ACCOUNTS RULES AND PROPERTY TRANSACTIONS................................................................13

DEPOSITS....................................................................................................................................................................... 13
MORTGAGE FUNDS.......................................................................................................................................................... 15
COSTS CHARGED TO A BANK OR A BUILDING SOCIETY...............................................................................................................20
MORTGAGE REDEMPTION..................................................................................................................................................24

CHAPTER 4: ACCOUNTING FOR VAT, ABATEMENT OF COSTS AND BAD DEBTS.........................................................26

VAT ON PROFIT COSTS......................................................................................................................................................26
ABATEMENT OF COSTS + VAT............................................................................................................................................27
VAT ON DISBURSEMENTS/CHARGES.....................................................................................................................................28
BAD DEBTS..................................................................................................................................................................... 33
MISC............................................................................................................................................................................. 34

CHAPTER 5: ACCOUNTING FOR INTEREST AND SUMS IN LIEU OF INTEREST..............................................................37

WHEN MUST INTEREST BE PAID AND HOW MUCH?.................................................................................................................37
HOW IS IT DEALT WITH?....................................................................................................................................................37
HOW TO RECORD INTEREST PAID ON MONEY HELD IN A GENERAL CLIENT ACCOUNT.......................................................................39

CHAPTER 6: FINANCIAL STATEMENTS..................................................................................................................... 41

FINANCIAL STATEMENTS.................................................................................................................................................... 41
PROPERTY SALE:...............................................................................................................................................................41
SHOWING VAT............................................................................................................................................................... 42




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,Solicitor’s Accounts
CHAPTER 1: SRA ACCOUNTS RULES
CLIENT MONEY

 Defined in Rule 2.1 as money held or received by the firm:
a) Relating to regulated services delivered by you to a client
b) On behalf of a third party in relation to regulated services delivered by you
c) As a trustee or as the holder of a specified office or appointment
d) In respect of your fees and any unpaid disbursements if held or received PRIOR to deliver
of a bill for the same
 Rule 4.1 states that “client money has to be kept separate from money belonging to the
authorised body”
 Authorised body means a body licensed under s.71(2) of the Legal Services Act 2007 in
accordance with the SRA Authorisation of Firm Rules

Examples of client money:
 Money received on accounts of costs before a bill/invoice is sent to the client
 Money received in respect of unpaid costs or expenses, i.e. land registry fees stamp duty land
tax, court fees.
 Client damages received by a firm in a personal injury matter
 Mortgage money received from a lender (third party) on behalf of the client
 Deposit money received to the firm from buyer’s solicitor
 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 expert fees, that have been received before a bill has
been sent to the client for those fees.

Any money received or held by the firm not falling within the definition of client money
under Rule 2.1 is office money

WHEN SHOULD YOU PAY MONEY RECEIVED FROM A CLIENT INTO OFFICE ACCOUNT?

 General rule – office money goes into the office account
 Money sent after the firm has paid for costs/expenses – no need for a bill to be issued
o The client should have been made aware of these costs in compliance with Rule 8.7 of
the CCS
 Money sent after a bill for the law firm’s fees has been delivered
o Under Rule 2.1(d) after a firm delivers a bill, the payment made to settle the bill is office
money
 Money sent after a bill for unpaid costs/expenses has been delivered

WHEN ARE YOU PERMITTED TO PAY OFFICE MONEY INTO THE CLIENT ACCOUNT?

 When you receive a mixed payment, as implied by Rule 4.2
 If the client transfers a mixed payment into the office account, the firm must ‘promptly’ allocate
the client money element to the client account
 If the client transfers a mixed payment to the client account, the firm must ‘promptly’ allocate
the office money element to the office account
 ‘Promptly’ doesn’t mean immediately

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, Solicitor’s Accounts
WHEN SHOULD YOU PAY MONEY RECEIVED FROM A CLIENT INTO THE CLIENT
ACCOUNT?

 Rule 2.3 requires “client money to be paid promptly into a client account” but there are
three exceptions set out in 2.3(a)-(c)
o Money held as a trustee of the holder of a specified office or appointment, such as a done
of a power of attorney, Court of Protection deputy or trustee of an occupational pension
scheme
o Client money represents payments from the Legal Aid Agency for your costs
o You agree in the individual circumstances an alternative arrangement in writing with
the client, or third party, for whom the money is held

WHEN ARE YOU PERMITTED TO PAY MONEY OUT OF THE CLIENT ACCOUNT?

 Under Rule 3.3, solicitors should not use a client account to provide banking facilities to clients
or third parties
 Rule 3.3 also stipulates that payments into, transfers from or withdrawals from a client account
must be in respect of the delivery by the solicitor/law firm of regulated services
 Rule 5.1 says client money may only be withdrawn when it is:
o For the purposes for which it is being held e.g. to be used to pay a court fee
o Following receipt of instructions from the client, or the third party from whom the money is
held
o On the SRA’s prior written authorisation or in SRA prescribed circumstances
 Rule 5.3 states that withdrawals of client money can only be made from the client account if
sufficient funds are held on behalf of that specific client to make the payment
 Another situation where the law firm can withdraw money from the client account is where the
firm is holding client money and the nature of the money shifts from being client money to office
money e.g. if the firm delivers a bill of costs/other written notification of costs

OTHER RULES

 Rule 8 specifies how the accounts of solicitors must be kept
 Rule 12: accountants’ reports
 Rule 13: record keeping




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