The SRA Accounts Rules are shorter and more principles-based than the rules they replaced in 2019, but they still catch out new firms. This guide explains the parts that matter most when you are starting out.
What counts as client money?
Broadly, client money is money you hold that belongs to your clients or to third parties in connection with your legal services. It includes money paid to you on account of costs before you have billed for the work. Once you have sent a bill for work done, the money that settles it is office money.
The core obligations
- Keep it separate. Client money must be kept in a client account, separate from the firm’s own money.
- Pay it in promptly. Money received for a client should go into the client account promptly.
- Only take it out for a proper purpose. Withdrawals must be for the client’s matter or with proper authority. Before you transfer money for your fees, the client must have received a bill or written notice of the costs.
- Don’t act as a bank. The client account must only be used for payments connected to the legal services you provide.
- Give it back. When you no longer need to hold money for a client, return it promptly.
Records and reconciliation
You must keep an accurate, up-to-date ledger for each client, showing every amount received and paid out. At least every five weeks you must reconcile your client account: the bank statement balance, your cash book and the total of all client ledgers should agree. This is the "three-way reconciliation", and it must be signed off by the COFA or a manager. Any difference needs investigating and fixing promptly.
Keep your accounting records for at least six years.
Do you need an accountant’s report?
If you hold client money, you normally need an accountant’s report for each accounting period, delivered within six months of the period’s end if it is qualified. There is an exemption for firms that hold only small amounts of client money, based on the average and maximum balances held in the period. Check the current thresholds in the rules before relying on the exemption.
An alternative: not holding client money at all
Some new firms avoid a client account entirely, for example by taking payment only after billing, or by using a third-party managed account where an FCA-regulated provider holds the money. This can simplify your compliance considerably, but it doesn’t suit every practice area. Conveyancing, for one, usually needs a client account.
How software helps
Most accounts-rule breaches in small firms come from manual records drifting out of step: a receipt recorded on the wrong ledger, a transfer made before a bill was sent, or a reconciliation that slipped past five weeks. Practice management software with built-in SRA accounting keeps client and office ledgers separate by design, imports bank statements, and produces the three-way reconciliation report for you.
Matterly includes SRA trust accounting with client, office and deposit accounts, bank statement import, reconciliation matching and period close on the Growth plan and above. See how it works.
This article is general information, not legal or regulatory advice. Rules and thresholds change, so always check the current SRA Standards and Regulations and guidance, or speak to a compliance adviser, before relying on it.