Solicitors Accounts Flashcards
Do disbursements come with VAT?
No - disbursements are VAT-free
What are NOT disbursements?
Photocopying charges
Phone charges
Travel expenses incurred from the matter
Postage fees
Bank transfer fees
Property SEARCH fees
What are disbursements?
Oath fees
Company search fees
Company registration fees
Court fees
Witness fees
Land Duty Stamp Tax
Land Registry fees
Which account must petty cash be paid out of?
Cash account (BM)
Where should deposits be held?
In a joint stakeholder account (buyer and seller)
What’s the SRA’s position on how law firms should deal with interest accrued in CM accounts?
There must be a fair policy, that is shared with clients at the outset - subject to any other written and informed agreement by the client
Is extra VAT ever charged when a law firm deals with an invoice on a client’s behalf?
Never - it is merely passed on to the client
What are the different ways that a law firm can pay for a client’s invoice?
Agency method (if the invoice is addressed to the client) - law firm can pay using CM or BM
Principal method (if the invoice is addressed to the law firm) - law firm can only pay using BM. The VAT is only included in the client’s BILL.
What is the exception to the principal method?
When an invoice is addressed to the firm, but is from legal counsel - then the firm can replace it with the client’s name
When can money be withdrawn from the client account, aside from client instruction?
When the SRA gives written authorisation
What happens if there is a breach of Account Rules, aside from reporting it to the COFA?
The law firm may be personally liable to pay back lost sums
What are the ways to split a cheque payment so it can go into both the client and cash accounts?
Either split the cheque, or deposit into either account and then promptly transfer out
Can a law firm automatically transfer CM from the client account (if there is any) to the cash account upon issuance of a bill to the client?
Yes, but only if they’ve explained to the client how and when payments are made, and they’ve notified the client that CM is being taken out of the account now
How much is VAT in the UK, generally?
20%
What transactions are exempt from VAT?
Property and financial transactions, disbursements
Can a firm charge VAT after leaving out ‘VAT’ in the initial letter?
No
What is the VAT threshold?
That a business or person has taxable supplied of £85,000 or more in the last 12 months
What are the 2 parts to VAT?
Input tax (from the suppliers to the business), and output tax (from the business to its clients)
What is the HMRC test for whether something is a disbursement?
The client was aware the services was not provided by the law firm
The client had benefitted from the services
The client had authorised the firm to pay on their behalf
The client’s money was actually used to pay the services
The firm had paid for the services on the client’s behalf
What are the requirements when setting up a client account?
It must be within England and Wales, and contain both the firm and client name. It cannot serve any other purpose (e.g. provide banking facilities) other than for transferring sums in relation to the provision of legal services
To whom do the SRA Account Rules apply to?
All SRA regulated bodies and their employees
How long do firms need to keep accounting records?
At least 6 years
Who should prepare accounting reports?
A chartered accountant who works for a registered audit firm
When is an accounting report not required?
- All CM is from the Legal Aid Agency
OR - The total average client account balance does not exceed an average of £10,000, or a maximum of £250,000 when all combined
When does an accounting report need to be delivered to the SRA?
If the report has any irregularities, then the report must be shared with the SRA within 6 months of the end of the accounting period
What are the exceptions to the requirement that CM must be paid promptly into the client account?
- Where the party provides written consent to the contrary
- It is CM from the Legal Aid Agency
- The law firm is holding CM as a trustee
