What Counts as Client Money for UK Solicitors? The SRA Definition Explained

Every solicitor in England and Wales who handles money for clients has to answer one question correctly, every time a receipt arrives: is this client money or is it office money? Get the definition wrong and you risk paying client money into the wrong account, a breach report to the Solicitors Regulation Authority (SRA), and in serious cases a referral to the Solicitors Disciplinary Tribunal.

This guide sets out exactly what counts as client money under the SRA Accounts Rules 2019 (in force 25 November 2019). It works through the four limbs of the Rule 2.1 definition, the boundary between client money and office money, how to handle mixed receipts, and the nuance that catches most firms out: money held in respect of your fees and unpaid disbursements before a bill is delivered. The examples are anonymised and drawn from conveyancing, litigation, and probate work.

The Rule 2.1 Definition: What Counts as Client Money

Client money is defined in Rule 2.1 of the SRA Accounts Rules 2019. It is money you hold or receive that falls into any one of four categories:

• (a) Relating to regulated services. Money you hold or receive relating to regulated services delivered by you to a client.
• (b) On behalf of a third party. Money you hold or receive on behalf of a third party in connection with your practice (for example, money for, or from, a lender, a beneficiary, or a counterparty).
• (c) As trustee or office-holder. Money you hold or receive as a trustee or as the holder of a specified office or appointment (for example, as executor, attorney, or deputy).
• (d) In respect of fees and unpaid disbursements before a bill. Money you hold or receive in respect of your fees and any unpaid disbursements, if held or received before you have delivered a bill for those costs.

If a receipt falls within any one of these limbs, it is client money and it must be paid promptly into a client account (Rule 3). The four limbs are deliberately broad. The common thread is your relationship with the money and the regulated service it relates to, not who beneficially owns it.

Client Money Does Not Have to Be the Client's Money

The single most useful point to internalise is that "client money" is not the same as "the client's money". Limb (b) captures money you hold on behalf of a third party: a lender's mortgage advance, a deposit you hold as stakeholder for a seller, settlement funds you hold for an opponent's costs. None of that belongs to your own client, yet all of it is client money because you control it in connection with your practice and must account for it to someone. Focus on the relationship, not the beneficial owner.

Client Money vs Office Money: Drawing the Line

Office money (sometimes called business money or firm money) is the practice's own money. It belongs in the business account, not the client account. The clearest categories of office money are:

• Money for your fees once you have delivered a bill for the work done.
• Reimbursement of disbursements you have already paid from the firm's own funds.
• Repayment of a loan the firm made to a client.
• Interest the firm is properly entitled to retain after accounting fairly to the client (interest is governed by Rule 7, the fair-sum test).

The boundary matters because the same physical receipt can change character over time. Money received as a payment on account of costs is client money on the day it lands; the slice you have billed becomes office money the moment you deliver the bill. The act that moves money across the line is the delivery of a bill (or written notification of costs incurred), not the arrival of the funds and not your private intention.

The Fees-and-Disbursements-Before-Billing Nuance

Limb (d) of Rule 2.1 is where firms most often slip. Money received in respect of your fees and any unpaid disbursements is client money while it is held before you deliver a bill. So a payment on account of costs cannot simply be banked as office money on receipt. It is client money, it goes into the client account, and only once you raise a bill does the billed portion become office money that you transfer out promptly.

The same logic applies to a disbursement you have not yet paid. If a client sends you funds to cover an expert's fee you have not settled, that money is held in respect of an unpaid disbursement and is client money until you either pay the third party or bill it. Contrast that with reimbursement of a disbursement you have already paid from office funds: that is office money from the outset, because you are recovering the firm's own expenditure.

Mixed Receipts: When One Payment Contains Both

A frequent real-world problem is the mixed receipt: a single payment that is partly client money and partly office money. A typical example is a client transfer that settles a delivered bill (office money) but also includes a float for a future disbursement (client money), all in one round figure.

Where a receipt includes both client money and office money, the safe and rules-compliant approach is to pay the whole sum into the client account and then transfer out the office-money element promptly once you can identify and substantiate it. If you cannot yet tell how the receipt breaks down, treat the whole amount as client money until you can. Paying a mixed receipt straight into the business account risks holding client money outside a client account, which is a breach. Resolve the split with a clear ledger entry rather than a guess.

Stakeholder and Trustee Money

Two specific situations deserve their own note because they sit squarely inside the definition.

Money held as stakeholder. When you hold a deposit as stakeholder (for instance, a contract deposit on a property sale before completion), you hold it on behalf of a third party and you must account for it depending on the outcome. It is client money under limb (b). It remains client money in your hands until you release it to whoever becomes entitled to it on completion or on a failed transaction.

Money held as trustee or office-holder. Money you receive when acting as a trustee, or as the holder of a specified office or appointment such as executor, attorney, or court-appointed deputy, is client money under limb (c). The key qualification is that you must be acting in that capacity in connection with your regulated practice. Funds held in a genuinely separate, personal trustee capacity outside your practice are a different matter, but money handled through the firm in connection with your regulated services falls within the rules.

Worked Examples: Applying the Definition

Example 1: A Conveyancing Deposit

A firm acts for a buyer and receives the contract deposit ahead of completion. The deposit is held to the order of the seller's side, often as stakeholder. It is client money under limb (b): money held on behalf of a third party in connection with the practice. It stays client money in the firm's hands until it is applied on completion.

Example 2: A Lender's Mortgage Advance

On the same purchase the firm also acts for the lender and receives the mortgage advance shortly before completion. Although the funds come from the lender and are destined for the seller, the firm holds them on behalf of a third party in connection with a regulated service. That makes the advance client money. The reference on the bank transfer does not change the character of the money; the four limbs do.

Example 3: Litigation Settlement Funds

A firm acting for a claimant receives settlement funds from the defendant's insurer. The whole sum is client money: it relates to regulated services delivered to the client and is received in connection with the practice. It remains client money until the firm accounts to the client for the net proceeds, even though part of it will, after a bill is delivered, become the firm's fees.

Example 4: Probate Estate Receipts

A firm whose partner is appointed executor receives the proceeds of a closed estate bank account. The money is received in the capacity of office-holder in connection with the practice, so it is client money under limb (c). It belongs in the client account, held for the estate beneficiaries, not in the business account.

Example 5: A Payment on Account of Costs

A new client sends funds on account of costs before any bill has been raised. Under limb (d) this is client money because it is held in respect of fees before a bill is delivered. It must go into the client account. Once the firm delivers a bill, the billed amount becomes office money and is transferred out of the client account promptly.

Why the Definition Matters: The Client Account and Its Limits

Correctly identifying client money is the foundation for the rest of the SRA Accounts Rules. Once money is client money, a chain of obligations follows:

• Separate client account (Rule 3). Client money must be held in a client account at a bank or building society branch in England and Wales, named to include the firm name and the word "client", and kept separate from the firm's own money.
• No banking facility (Rule 3.3). You must not use a client account to provide banking facilities. Every payment in, transfer, or withdrawal must relate to the delivery of regulated services. Passing unrelated money through client account is a serious breach.
• Fair interest (Rule 7). You must account to the client or third party for a fair sum of interest on client money held.
• Reconciliation (Rule 8.3). The client account must be reconciled at least every five weeks, signed off by the COFA or a manager.

These obligations only attach to money that is client money in the first place, which is why the Rule 2.1 definition is the gateway to compliance rather than a side issue.

Client Money and the Accountant's Report

The definition also drives the figures that determine whether your firm needs an accountant's report. A firm that has held client money in the accounting period must obtain an annual accountant's report under Rule 12, unless it qualifies for the exemption in Rule 12.2. In broad terms the exemption applies where the client money held did not exceed an average of £10,000 and a maximum of £250,000 in the period (or where all the client money was held only on behalf of the Legal Aid Agency).

The threshold detail, how the averages and maximums are measured, and what your COFA needs to monitor are covered in our dedicated guide: SRA accountants report exemption thresholds. For the purposes of this page, the point to carry away is that everything counted toward those balances is determined by the Rule 2.1 definition above.

Practical Steps for Identifying Client Money

1. Train everyone who touches money. Every fee-earner and accounts team member should be able to run the four-limb test from memory.
2. Use a decision test on every receipt. Ask, in order: does it relate to regulated services for a client? Do I hold it on behalf of a third party? Do I hold it as trustee or office-holder? Do I hold it in respect of fees or unpaid disbursements before a bill? If yes to any, it is client money.
3. Default to the client account when in doubt. If you cannot yet classify a receipt, treat it as client money until you can substantiate otherwise, then move any office-money element out promptly.
4. Record borderline decisions. Note why you treated a receipt as client or office money. The note protects you if the SRA or your reporting accountant queries it.
5. Reconcile and review. Reconciliation at least every five weeks is mandatory under Rule 8.3; more frequent checks catch misclassification earlier.

Conclusion

Under Rule 2.1 of the SRA Accounts Rules 2019, client money is money you hold or receive relating to regulated services for a client, on behalf of a third party, as trustee or office-holder, or in respect of your fees and unpaid disbursements before a bill is delivered. It does not have to belong to your own client, it can change character once you raise a bill, and a single receipt can contain both client and office money. Apply the four limbs consistently and the rest of the rules follow.

If you would like a second pair of eyes on how your firm classifies receipts and handles client money, our SRA Accounts Rules support can help. To talk through a specific situation, get in touch.