FLK2 · Solicitors Accounts

Client money vs business money

SQE1 revision notes — the key rules, leading cases and common traps for this topic, in plain English and current to 2026.

SA.01 — Client Money vs Business Money

Governed by the SRA Accounts Rules 2019 (in force 25 Nov 2019). The first task in any accounts question is to classify the money: get this wrong and every later entry is wrong.

What is "client money"? (Rule 2.1)

Money held or received by the firm:

(a) relating to regulated services delivered to a client;
(b) on behalf of a third party in the course of regulated services (e.g. counsel's fees, stamp duty/SDLT, Land Registry fees);
(c) as trustee or holder of a specified office/appointment (e.g. executor, attorney);
(d) in respect of fees and unpaid disbursements before delivery of a bill.

The core rule (Rule 4.1)

Keep client money separate from the firm's own money. Client money goes into a client account (Rule 2.3 — a bank/building society account in England & Wales, with "client" in the name). Business money goes into the business/office account. Never mix the two.

Key distinctions and traps

Disbursements — paid vs unpaid. Money for a disbursement already paid by the firm is business money (you're reimbursing yourself). Money for a disbursement not yet paid is client money until paid. This is the single most-tested trap.
Mixed receipts (Rule 4.2). A payment that is part client / part business must be allocated promptly to the correct account. The whole sum may go into client account first, then the business element transferred out promptly — but it must not stay mixed.
Money on account of costs is client money (regulated services not yet billed) — bank it in client account, not office account.
Fees + unpaid disbursements after a bill is delivered: once you raise a bill, money held for your billed costs ceases to be client money — transfer it out of the client account promptly (Rule 4.3). Note: the SRA Accounts Rules 2019 set no fixed deadline here — the standard is "promptly." The old "14-day" figure is from the superseded Solicitors' Accounts Rules 2011 and is a common distractor; do not apply it.
Returning client money (Rule 2.5): return promptly as soon as there is no proper reason to hold it.
No own money in client account / no client money "buffer" beyond what's permitted.

The Rule 2.2 exception (often missed)

If the only client money the firm holds for the matter falls within limb (b) (third-party payments) and/or limb (d) (fees/unpaid disbursements before a bill), it is not held for any other purpose, and the client/third party has been informed the money will not be held in a client account, the firm may treat that money as business money and keep it in the business account. Watch for this carve-out — it changes the classification.

Anchor: Rules 2 (definitions/client account), 4 (client money obligations).

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A woman is the treasurer of a small amateur football club. Members pay £20 each month in cash, which the woman is instructed by the club's rules to bank into the club's dedicated account within seven days. One month she receives £200 in subscriptions but, being short of money, uses the cash to pay her own gas bill. She intends to replace the £200 from her wages before anyone notices, and she does in fact pay an equivalent £200 into the club account two weeks later. The woman is charged with theft of the £200. Which of the following is the strongest basis for finding the property belonged to another at the time she used it?

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