Transfers & mixed payments

Solicitors Accounts (FLK2) — SA.04: Transfers & Mixed Payments

Governed by the SRA Accounts Rules 2019. The cardinal principle: keep client money separate from the firm's money, and withdraw only where sufficient funds are held for that specific client or third party (Rules 4.1 and 5.3).

Transfers between client and business account

• Costs transfer (Rule 4.3): before transferring client money to pay the firm's costs, give the client or paying party a bill or other written notification of the costs incurred. Transfer only the specific sum identified, and only if it is covered by the amount held for that client or third party. This is distinct from reimbursing a disbursement already paid by the firm, below.
• Paid disbursements: SRA guidance states that Rule 5.1(a) allows money for a disbursement the firm has already paid on the client's behalf to be transferred from client account to business account, because the money is being used for the purpose for which it is held. A bill or written notification is not needed for that reimbursement. The SRA expects the firm to have explained to the client how and when it may pay on the client's behalf and then reimburse itself from client account; that is an expectation in guidance, not a condition in Rule 5.1. A disbursement the firm has not paid, whether or not it has been incurred, is outside this route: apply Rule 4.3 before transferring money for it to business account.
• Anticipated fees and disbursements: Rule 4.3 refers to a bill or notification of the costs incurred, and the SRA expects a bill to set out only fees and disbursements that have been incurred. If a bill does include an anticipated disbursement, leaving that money in client account until the disbursement is paid is not a breach of Rule 4.3. Billing in advance is permissible under the Rules, but the SRA's stated view is that billing for an advance disbursement the client remains liable to pay, such as SDLT, and receiving that money into business account would be improper and a breach of its Standards and Regulations. The duty to safeguard a client's money applies wherever the money is held.
• Round-sum / advance costs: money held or received for fees and unpaid disbursements before delivery of a bill is client money (Rule 2.1(d)). Pay client money promptly into client account, subject to Rules 2.2 and 2.3. Delivery of a bill or notification does not remove the need to satisfy all Rule 4.3 conditions before transferring money already in client account.

Inter-client transfers

• Withdrawal authority (Rule 5.1): withdrawal must be for the purpose for which money is held, follow instructions from the client or third party for whom it is held, or have the SRA's prior written authorisation or fall within prescribed circumstances. These are alternative grounds, not cumulative conditions. Treat an inter-client transfer as a withdrawal of the paying client's money: establish the authority, authorise and supervise it appropriately (Rule 5.2), and record it on both client ledgers (Rule 8.1).
• Watch you do not create a debit (negative) balance on the paying client's ledger — that means using one client's money for another, a breach of Rule 5.3, which requires sufficient funds for that specific client or third party.

Mixed payments (Rule 4.2)

A single receipt containing both client money and business money (e.g. a cheque covering a settled bill plus money on account):

• Allocate promptly — Rule 4.2 requires a mixed payment to be allocated promptly to the correct client account or business account.
• Rule 4.2 does not prescribe one banking sequence or a fixed number of days. Identify each element and ensure prompt allocation to the correct account; do not leave the client's element in business account or the firm's element in client account.

Common traps / distinctions

• Costs notification before transfer: Rule 4.3 requires a bill or other written notification of the costs incurred before the transfer. Check the specific sum and funds held too; distinguish the paid-disbursement reimbursement route.
• No overdrawn client ledgers — never let a client's individual ledger go into deficit.
• VAT on fees follows the fees: a payment of a delivered bill for the firm's fees, including VAT, is business money. Money received for fees and VAT before delivery of a bill is client money (Rule 2.1(d); SRA Glossary, "fees"); for disbursements, distinguish reimbursement of money already paid from unpaid costs and liabilities the client remains responsible for, as above.
• Operating without a client account (Rule 2.2): the rule does not depend on the money falling outside the definition of client money — it applies to client money within Rule 2.1(d), the firm's own fees and unpaid disbursements held before a bill, and removes the requirement to hold it in a client account. The conditions: the only client money held or received must fall within Rule 2.1(d); any disbursement money must relate to costs or expenses incurred by the firm on the client's behalf for which the firm is liable; the firm must maintain no client account for any other reason; and the client must have been told in advance where and how the money will be held. Money held for costs already billed is outside Rule 2.1(d) altogether, so Rule 2.2 does not reach it.
• Correct breaches (Rule 6.1): correct a breach promptly on discovery. Money improperly withheld or withdrawn from client account must be immediately paid into it or replaced, as appropriate. A later bill does not retrospectively cure wrong banking at receipt. The Rules contain no grace period.

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