If your law firm holds money for clients, you must follow strict rules from the Solicitors Regulation Authority (SRA). These are the SRA Accounts Rules, in force since 25 November 2019. Many firms also need an accountant’s report every year. This guide explains the rules in simple English, so you know what to do and when.
This guide was checked on 5 October 2026 and applies to the 2026/27 tax year and the current SRA Accounts Rules.
What is client money?
Client money is money you hold for someone else. Under the SRA rules it includes money for your regulated legal services, money you hold for a third party, money you hold as a trustee, and fees or disbursements paid to you before you send a bill. For example, a deposit for a house purchase, or money on account of costs, is client money.
Money that belongs to the firm (for example, fees after you have sent a bill) is office money.
The main SRA Accounts Rules in simple words
- Keep it separate (Rule 4): client money must be kept apart from the firm’s own money, in a client account. If you receive a mixed payment, you must quickly put each part in the right account.
- Send a bill first (Rule 4.3): before you move client money to pay your own costs, you must give a bill of costs or other written notice of the costs to the client or the paying party.
- Only take money out for the right reason (Rule 5): you may withdraw client money only for the purpose it is held for, on the client’s instructions, or with SRA authority.
- Pay fair interest (Rule 7): you must account to clients for a fair sum of interest on money you hold for them.
- Keep accurate records (Rule 8): keep a client ledger for each client, showing all money in and out.
- Reconcile every five weeks (Rule 8.3): at least every five weeks you must check the bank statement balance against the cash book balance and the client ledger total. Any difference must be found and fixed.
- Keep records for six years (Rule 13): store all accounting records safely for at least six years.
What is an accountant’s report?
An accountant’s report is an independent check of how your firm handled client money during the year. The accountant tests your records, reconciliations and controls against the SRA Accounts Rules.
Under Rule 12, if you held or received client money during an accounting period, you must get an accountant’s report within six months of the end of that accounting period.
You only need to send the report to the SRA if it is “qualified”. A qualified report means the accountant found that you did not follow the rules in a way that put client money at risk. A clean report does not need to be sent to the SRA.
Who can prepare the accountant’s report?
The SRA rules say the report must be prepared and signed by a chartered accountant who is also a registered auditor, in the form the SRA sets. You must give the accountant all the records and information they need to finish the report.
When you do not need an accountant’s report
Rule 12.2 gives two exemptions. You do not need a report for an accounting period if:
- all the client money you held or received came from the Legal Aid Agency, or
- the balance of client money you held during the period was no more than £10,000 on average and no more than £250,000 at its highest.
Even if you are exempt from the report, you must still follow all the other Accounts Rules, including the five-weekly reconciliations. The SRA can also ask for a report at any time if it has a good reason.
Common problems that lead to a qualified report
- Reconciliations not done every five weeks, or differences left unexplained.
- Client ledgers showing a debit balance (more paid out than received for that client).
- Costs moved from client account to office account without a bill first.
- Old residual balances left in client account for a long time.
- Office money mixed with client money.
Good monthly bookkeeping stops most of these problems before they grow.
Tax and accounts for law firms
Apart from the SRA rules, your firm has normal tax duties too:
- Sole practitioners and partners file a Self Assessment tax return each year.
- Limited companies must file annual accounts with Companies House and a Corporation Tax return with HMRC.
- VAT: you must register for VAT if your taxable turnover for the last 12 months goes over £90,000, or you expect it to go over £90,000 in the next 30 days (threshold checked on GOV.UK for 2026/27).
- Payroll: if you employ staff, you must run PAYE and report to HMRC each time you pay them.
How UK Tax Co can help
UK Tax Co helps solicitors and law firms all over the UK with daily bookkeeping, monthly client account and office account reconciliations, company accounts, payroll and VAT. Clean records make the accountant’s report quicker and easier. See our solicitor accounts service.
Our fixed prices include: Company Accounts £50 per month (includes 1 payroll), Payroll £10 per person per month, VAT Returns £129 per quarter and Self Assessment £120. You can also read about our bookkeeping service.
FAQ
How often must a law firm reconcile its client account?
At least every five weeks, for every client account, under SRA Accounts Rule 8.3.
When is the accountant’s report due?
You must obtain it within six months of the end of your accounting period. You only send it to the SRA if it is qualified.
Do small firms need an accountant’s report?
Not if your client money balance was no more than £10,000 on average and no more than £250,000 at its highest during the period, or if all client money came from the Legal Aid Agency.
How long must I keep my accounting records?
At least six years, stored securely (SRA Accounts Rule 13).
This article is general guidance, not personal tax advice.
Need help? Call UK Tax Co on 020 7050 0712 or WhatsApp 07579566666.