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 never use one client's money for another's matter (Rules 2 and 4). Note the 2019 Rules are deliberately short and outcomes-focused — cite the principle, not an over-precise sub-paragraph.

Transfers between client and business account

• Costs transfer (Rule 4.3): client money may only be withdrawn for the purpose for which it is held. You may transfer money held for a client to the business account for your firm's costs only once you have delivered a bill of costs (or other written notification of the costs incurred). No bill, no transfer.
• Disbursements: money for a disbursement the firm has already paid (or is contractually obliged to pay) can be moved to the business account; an anticipated future disbursement not yet incurred stays client money until paid.
• Round-sum / advance costs: money received generally on account of costs is client money (within the definition in Rule 2.1) until a bill or written notification of costs is delivered. Transfer to business only after billing.

Inter-client transfers

• A transfer from one client ledger to another (e.g. on a related transaction) is permitted, but it is a withdrawal that must be for the purpose for which the money is held (Rule 4.3) and must be properly recorded (Rule 8). Only transfer where money is genuinely held for the receiving client.
• 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 the separation principle (Rules 2/4).

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.
• Safest practice: pay the whole sum into the client account first, then transfer the business-money element to the business account promptly. This protects client money if allocation is delayed.
• Alternatively, split the payment between the two accounts on receipt.

Common traps / distinctions

• Bill first, transfer second — transferring costs before delivering a bill is the classic breach.
• No overdrawn client ledgers — never let a client's individual ledger go into deficit.
• VAT on the firm's professional fees is business money; disbursement money the firm pays as agent is client money until paid.
• Operating without a client account (Rule 2.2): a firm may operate without a client account only where the money it holds falls outside the definition of client money (e.g. fees/disbursements already billed). If money is genuinely client money it must be held in a client account — there is no rule letting a firm park client money in business account.
• "Promptly" is the recurring test — there is no fixed number of days in the 2019 Rules.