client money Flashcards
how soon must you pay client money into bank account
promptly
exceptions to the rule that client money must be paid into the bank account promptly
held as trustee or office holder and would conflict with obligations
money from legal aid for firm’s costs
written agreement with client
when must you return the client’s money to them
as soon as there is no longer any proper reason to hold the funds
what to do when the firm receives a mixed payment
allocate it promptly to correct bank account. Firm can choose whether money is paid initially into client or firm account.
what to do if the payment due for disbursements exceeds the amount of client money held
make payment from business account or advance firm money to client. the advance becomes client money and subject to rules of client money.
residual client account
money the firm has not returned to client at end of retainer and now cannot identify or trace the client
what to do if you want to use some of the client money you hold to pay your costs
issue bill or written notification of costs before taking money. For specific amount in bill. Not more than what you hold for the client.
can you transfer funds held in client bank account to cover costs prior to giving a bill
no
can you transfer funds held in client bank account to cover disbursements prior to giving a bill
yes if it is clear from the outset that the purpose of the receipt was to pay the disbursement
when can you withdraw client money
for purpose it is held
instructions from client / person it is held for
authorisation of SRA
exception: less than £500 in residual client account to go to charity and made reasonable attempt to find client.
when can’t you withdraw from client account
when there aren’t sufficient funds available in client account.
what to do if you withdraw more funds from the client account than are available
correct this promptly and replace money immediately
how to withdraw money from client account
with authorisation and supervision
can the bank claim against client money in respect of any liability of the solicitor to the bank
no - no recourse to client money
how easily must the client money be accessible
it must be available on demand unless agreed in writing so no extended notice periods
who is a client
a person you act for
what are costs
fees and disbursements
what are fees
your own charges and VAT
what are disbursements
any costs or expenses paid or to be paid to a third party on behalf of the clients or trust including VAT.
are monies for fees and disbursements client money
yes so must be put into client account unless disbursement has already been billed or paid by firm.
rule 2.2
only category of client money held by firm
any money for disbursements relates to expenses incurred for client for which firm is liable
and
firm doesn’t have a client bank account for any other reason
then money can be held outside a client account but must tell client in advance where and how money is held
does money for fees and disbursements always need to go into a client account
yes unless disbursements have been billed, paid by firm already or rule 2.2 applies
what is client money
money held or received by the firm:
relating to regulated services to a client
as a trustee / office holder
relating to regulated services for a third party e.g. as a stakeholder
does client money and firm money always need to be held separately
yes. breach of this would be a disciplinary matter
who do the rules regarding client money apply to
authorised bodies, their managers and employees. Managers are jointly and severally responsible for compliance by body, managers and employees.
licensed bodies in respect of regulated services
how does a client ledger identify the client
with the name and description of the matter
what must the client ledger show
all payments and receipts of client money
all payments on behalf of client with firm money
and
bills issued and receipts of money to pay bills
can the client bank account be used to provide banking facilities to the client
no
payments into and withdrawals from client account must relate to the provision of regulated service
ask if there is any justification for money to pass through the client account when it could be paid directly to the client
do you need a cash book for the client money and a cash book for the firms money
no only need a cash book for client money but they often opt to have one for firm money too
where to record transactions relating to client money
every transaction relating to client money should be recorded in at least the client cash book and client ledger
in what order should account entries be made
chronological order
how often must bank statements be obtained and for which accounts
get statements every 5 weeks for client account and firm account
what must you do when you receive the 5 weekly statement
prepare a bank reconciliation statement for client account. Update cash book, bank statement and investigate discrepancies.
where to keep a record of bills
central record in readily accessible format
do firms that don’t operate client accounts still need to obtain 5 weekly statements and keep central record of bills
yes
when there is a joint account is it a client account
no
when there is a joint account does it contain client money
yes
do you have to obtain 5 weekly statements and keep central record of bills for a joint account
yes
when a solicitor operates a client’s own account (eg PoA) is it a client account
no
when a solicitor operates a client’s own account (eg PoA) is it client money
depends on the circumstances. if solicitor has money as a trustee it is client money
when a solicitor operates a client’s own account (eg PoA) do they still need to get 5 weekly statements and keep central record of bills
yes
requirements to use third party managed account
must be FCA regulated
must be authorised payment institute
solicitor must maintain overview, get regular statements and have own internal monitoring system
must make client aware of differences in protection between FCA and SRA
take reasonable steps to ensure client understands how money is held
notify SRA
does the firm need SRA permission to use a third party managed account
no but must notify SRA
how can the client complain about a third party managed account
complain to the provider in accordance with their procedures
do you need to account to client for interest
yes a fair sum according to firms own rules unless written agreement otherwise
where should interest be paid when accounting to client for the interest
2 options: either to general client account or to a separate designated deposit bank account for that particular client.
is stakeholder money client money
yes
where is stakeholder money held
either seller’s ledger
or
in separate stakeholder ledger in joint names then on completion inter-client transfer it to seller’s ledger
for whom is stakeholder money held
jointly for buyer and seller
for whom is bridging loan held for
borrower
what is a bridging loan
seller buying new property can take bridging loan to pay purchase deposit
where to record a bridging loan
in client ledger
if you act for the borrower and the lender are they two separate clients
yes
for whom is a mortgage advance held
lender until completion then borrower
how to record a mortgage advance if you act for both lender and borrower
2 options to choose from
option 1 - credit mortgage advance to borrowers ledger when received
option 2 - credit mortgage advance to lender’s ledger on receipt. then on completion inter-client transfer to borrower’s ledger
when shouldn’t the buyer’s solicitor record the mortgage advance
when it is paid straight to the seller from the lender. the buyer’s solicitor doesn’t handle it so no entry made
does the lender always pay their own fees
no often the borrower will pay these
what is the normal rule regarding to who’s ledger the cost of services and VAT is debited
debit the cost of services and VAT to the ledger of the person to whom services were supplied
how to record the borrower paying the lender’s fees
DR buyer’s ledger business section with fees charged on purchase and VAT
CR profit costs and HMRC accounts with fees on purchase and VAT
DR lenders ledger business section with fees for mortgage and VAT
CR profit costs and HMRC with fees for mortgage and VAT
THEN transfer the debt from the lender’s ledger to the borrower’s ledger
CR ledger’s ledger business section with mortgage fees and VAT and ONE figure
DR buyer’s ledger business section with fees and VAT as one figure
if there is not a separate ledger for the lender the fees and VAT of lender will have to be shown on borrower’s ledger
if you are acting for both the seller and the lender for whom do you receive the sale proceeds and which account are they paid into
some proceeds are owed to seller and some to lender BUT whole receipt is client money and paid into client bank account.
credit full amount to seller’s ledger then immediate inter-client transfer of amount required to redeem mortgage
how to record mortgage redemption when acting for both seller and lender
method 1:
Credit full amount to seller’s ledger then immediate inter-client transfer of amount required to redeem mortgage to lender’s ledger THEN pay lender the amount to redeem the mortgage
Credit full amount to seller’s ledger then immediate inter-client transfer of amount required to redeem mortgage to lender’s ledger
CR seller’s ledger client section
DR cash account client section
DR seller’s ledger account client section
CR lender’s ledger account client section
THEN pay lender the amount to redeem the mortgage
DR lenders ledger client section
CR cash account client section
how to record mortgage redemption when acting for both seller and lender
method
method 2:
split the credit entries at the time of reciept
CR seller’s ledger client section (only seller’s amount)
CR lender’s ledger client section (only lenders amount)
DR cash account client section whole amount
how to record mortgage redemption when only acting for seller and money is paid directly to lender’s solicitor
make no entries
how to record seller paying lender’s fees
Issue of bills:
DR seller’s ledger business section with fees of sale and VAT
CR profit costs and HMRC with fees of sale and VAT
DR lender’s ledger business section with fees on mortgage and VAT
CR profit costs and HMRC with fees of mortgage and VAT
THEN transfer debt from lender’s ledger to seller’s ledger
CR lender’s ledger with fees charged on mortgage and VAT as ONE AMOUNT
DR seller’s ledger with fees charged on mortgage and VAT as ONE AMOUNT
how long must accounting records be kept for
6 years
how must accounting records be stored
securely
which firms must prepare an accountants report
all firms that have held or received client money, operated a joint account or a client’s own account as signatory
how long do you have to obtain an accountant’s report
6 months from end of accounting period
when must the accountant’s report be sent to the SRA
if it is qualified (this means the rules have been breached so the money belonging to clients or third parties is or has been at risk)
how long do you have to send a qualified accountant’s report to the SRA
6 months from end of accounting period
on whom is the obligation to submit a qualified accountant’s report to the SRA
the firm
what docs can the accountant request when preparing an accountant’s report
the firm must provide details of all accounts held at any time during the accounting period and all other info and docs the accountant requires
does a firm which ceases to be an authorised body or to hold client account always have to submit an accountants report
no only when the SRA requests it
when can the SRA request that a firm submit an accountant’s report
when it is in the public interest or if they think it is necessary following the firm ceasing to be an authorised body or ceasing to hold client account
what must an accountant consider when preparing the accountant’s report
if the rules are breached
if any investigations are needed
if the solicitor / firm is fit to hold client money
obligation to report any theft / fraud
when is a firm not required to obtain an accountant’s report
if all the client money held or received during the accounting period is from the legal aid agency
or
in the accounting period the total balance of all client accounts plus any joint accounts and client’s own accounts operated by the firm doesn’t exceed an average of £10k and max of £250K
what requirements must the accountant meet to be able to complete an accountant’s report
must be a member of one of the charter accountancy bodies and must be or work for a registered auditor
who must prepare and sign the accountants report
the accountant
when can the SRA disqualify an accountant from preparing a report
if the accountant has been found guilty by their professional body of professional misconduct or equivalent
or
the SRA is satisfied that the accountant has failed to exercise due care and skill in the preparation of the report
