Solicitors Accounts Notes

Main Principles
Rule 1
Solicitor must:
• Keep client money separate

• In a bank or building society account

• Use each client’s money for their matter only; and

• Keep proper accounting record

Money must be kept physically separate

To do this solicitor needs two bank accounts:
• Office bank account

• Client bank account

Do not need separate bank account for each separate client

Rule 13(5):
• 2 types of client bank account:

o A separate designated client bank account

o A general client bank account

• Name of client bank account must include the word client

Keep proper records

Rule 1(c) – you must use each client’s money for their matter only
Rule 1(f) – must keep proper accounting records – each client must have
separate records

What is Office and Client Money?

Rule 12:
• Client money – money held or received for a client or as trustee, and all
other money which is not office money

• Office money – money which belongs to you or your firm.

Client money includes money held or received:

• As trustee

• As:

o agent,

o bailee,

o stakeholder
 o donee of a power of attorney

• For payment of unpaid professional disbursements

• For payment of:

o Stamp Duty Land Tax,

o Land Registry fees,

o telegraphic transfer fees,

o court fees

• Payment on account of costs generally

• As a financial benefit paid in respect of a client

• To the sender’s order

• An advance to a client which is paid into a client account becomes

client money

• A cheque in respect of damages and costs, made payable to the

client but paid into a client account becomes client money.

• Endorsing a cheque or draft over to a client amounts to receiving

client money

Office Money
• Money held or received in connection with running the firm, e.g.:

o Firm’s fees

o VAT on firm’s fees

• Interest on general client accounts

• Payments received in respect of:

o Fees due to the firm against a bill or written notification of

costs incurred

o Disbursements already paid by the firm

o Disbursements incurred but not yet paid by the firm, but

excluding unpaid professional disbursements

o Money paid for or towards an agreed fee

 o Money held on account and earmarked for costs – client
money but can be used as office money

• Money held for a principal of the firm

Principals
• Principals are owner/partner of firm/sole practitioner

• Assistant solicitors and employees are not ‘principals’

• HOWEVER if money held for Principal +3rd party = client money

o Examples of 3rd party: lender, spouse of principal.

How to Deal with Receipts of Client Money

Rule 14(1)
• Client money must be paid into a client bank account without delay
(that day or next business day)

• …except where the Rules provide to the contrary

• Rules 15 & 16 provide for exceptions to Rule 14(1)

Rule 14(2)
Only client money may be paid into client bank account
Exceptions to Rule 14(2):
a) To open or maintain the account at an agreed level

b) To advance funds to a client to make a payment on the client’s behalf

c) To replace client money that has been wrongly withdrawn

d) To allow interest to be paid into client bank account so that everything

owing to client can be paid in one cheque

e) Conditional Fee Agreement – mixed cheque for damages, fees and

disbursements

f) Rules 17 & 18

• Rule 17 – money received in settlement of solicitor’s bill

• Rule 18 – mixed receipts

How to Make Payments on the Client’s Behalf

• Rule 20 – if client money is available use client money to pay for items
on client’s behalf
Rule 20
• To make payments to or on behalf of a client

• To make payments to or on behalf of a trust

• To pay a disbursement on behalf of a client or trust

• To reimburse the firm for payments already made

• To transfer to another client bank account

Rule 20(6) limitation

• Money withdrawn from client account must not exceed money held in
account

• If there is no money and fees need paying either get money off client or
pay using office money and recover money from client at a later date

Withdrawing money for your own professional charges?

• Yes, but must send bill first

Making Payments
If insufficient funds in client bank account:
1.) Ask client for more money

2.) Make whole payment from office

3.) Write two cheques – one for using all of client money and remainder
from office account – confusing solution though

4.) Advance the client money and make whole payment from client bank
account

Property Transactions
Mortgage Advance
• Received between exchange and completion

• Lender’s money until completion

• Rule 29: Separate ledger for each client

• Rule 29(10) alternative: record mortgage advance on client section of

borrower’s ledger if:

o Funds belonging to each client are clearly identifiable

o Lender is:

 An institutional lender