When Is an SRA Accountant's Report Required for a Solicitor Firm?

What Is an SRA Accountant's Report?

An SRA accountant's report is a formal document prepared by an independent qualified accountant. It confirms whether your solicitor firm has complied with the SRA Accounts Rules during the accounting period, focusing on how the firm has handled client money: receipt, holding, payment, recording and reconciliation. It is not a full audit of the firm's accounts.

This post answers a single question precisely: when is the report actually required? The short version is that holding client money triggers the obligation, and an exemption can switch it off. The rest of this guide works through that trigger logic in detail. For the deep threshold maths and worked examples behind the exemption, see our companion guide on the SRA accountant's report exemption thresholds.

The Trigger: Holding Client Money

The core rule is in Rule 12.1 of the SRA Accounts Rules. If your firm, at any time during an accounting period, held or received client money (or operated a joint account or a client's own account as signatory), you must obtain an accountant's report for that period. The trigger is the act of holding or receiving client money. It is not the size of the firm, the number of partners, or the level of fee income.

Read that "at any time" carefully. The obligation is triggered by a single moment of holding client money in the period, not by holding it continuously. A firm that received client money once, early in the year, and held none for the remaining eleven months has still held client money in the period and is within Rule 12.1. The question is binary: did the firm hold or receive client money at any point? If yes, the obligation is engaged unless an exemption applies.

From this trigger, three questions follow, and the rest of this guide answers each in turn:

• What counts as holding client money (so you know whether the trigger fired)?
• Does an exemption switch the obligation off (the Rule 12.2 routes)?
• If a report is required, by when must it be obtained, and when must it be delivered to the SRA?

What Counts as Holding Client Money?

Client money is defined in Rule 2 of the SRA Accounts Rules and is drawn widely. It is money held or received by the firm that relates to regulated services and is held on behalf of a client or third party, money held as trustee or as the holder of a specified office or appointment, and money held in respect of the firm's fees and any unpaid disbursements before delivery of a bill. In conveyancing it typically includes purchase deposits, completion funds passing through the client account, advance payments for disbursements, and money set aside for stamp duty land tax.

Because the definition is broad, the trigger fires more often than firms expect. A sole-practitioner conveyancer who assumes the rules do not apply because the firm is small is asking the wrong question. The question is not how big the firm is, but whether it touched client money. A single purchase deposit sitting in the client account for a day is client money held in the period, and the Rule 12.1 obligation is engaged.

Two practical points follow. First, money that never enters a client account because it is paid directly by the client to a third party is not client money the firm has held. Second, the COFA carries the responsibility for judging whether a particular sum is client money, and where the position is genuinely unclear the safer course is to treat it as client money and assess the report obligation accordingly.

When the Obligation Switches Off: the Rule 12.2 Exemption

Holding client money triggers the obligation, but Rule 12.2 provides an exemption that switches it off. A firm does not need to obtain a report for a period if either of two routes applies.

• The Legal Aid route. All of the client money the firm held or received during the accounting period was money received from the Legal Aid Agency. Where every penny of client money came from the Legal Aid Agency, no report is required, whatever the balances involved.
• The low-balance route. The statement or passbook balance of client money the firm held or received did not exceed an average of £10,000 and a maximum of £250,000 (or the equivalent in foreign currency) across the accounting period. This is a two-limb test, and both limbs must be met: the average must stay at or below £10,000 and the peak must stay at or below £250,000.

If you have seen a different figure quoted, such as a £250 average, it is wrong. The correct limits are an average of £10,000 and a maximum of £250,000. We set out the exact arithmetic, how the average and peak are calculated, and worked examples of firms that do and do not qualify in our dedicated guide on the SRA accountant's report exemption thresholds. This page deliberately keeps the focus on the trigger and the deadline rather than reproducing that detail.

The key structural point for the trigger logic is this: the exemption removes only the requirement to obtain the report. It does not remove any other obligation under the Accounts Rules. An exempt firm must still hold client money in a properly named client account, reconcile that account, account for a fair sum of interest, and observe the prohibition on using a client account to provide banking facilities (see below).

Losing the Exemption Part-Way Through the Year

The exemption is assessed over the whole accounting period, which creates a trap firms regularly fall into. A firm that starts the year comfortably within the low-balance route can be tipped out of it by a single event.

Consider an anonymised example. A small firm advising mainly on wills and small estates expects to stay well under the limits. Mid-year it takes on one conveyancing matter and briefly holds completion funds that push the client account above £250,000 for a single day. That one day breaches the maximum limb. The firm has lost the low-balance route for the entire period and must obtain a report covering the full year, not just the period after the spike. There is no partial exemption for the months before the threshold was crossed.

The same logic applies to the average limb. A firm whose balance never reaches £250,000 but whose average creeps above £10,000 across the period, for example because a matter sat unbilled with funds held for several months, also falls outside the low-balance route. Because the test is retrospective over the whole period, the COFA should track the running average and the peak balance through the year, so the firm knows in good time whether it will need a report rather than discovering it at the period end.

Qualified Versus Unqualified: When the Report Reaches the SRA

A point that is widely misunderstood: obtaining a report and delivering it to the SRA are two different things. Rule 12 requires you to obtain a report where the trigger fires and no exemption applies. You only have to deliver that report to the SRA if it is qualified.

A report is qualified when the accountant identifies a failure to comply with the Accounts Rules such that money belonging to clients or third parties is, has been, or is likely to be placed at risk. A qualified report must be delivered to the SRA within six months of the end of the accounting period.

An unqualified report, where the accountant is satisfied that client money has been handled in line with the rules, is obtained and retained by the firm but is not routinely filed with the SRA. So a compliant firm that needs a report still commissions one each year, keeps it on file, and only sends it to the regulator if it comes back qualified. This is why the report is best treated as an annual assurance exercise rather than a filing chore: the goal is an unqualified report that stays in your records.

The Six-Month Deadline

Where a report is required, it must be obtained within six months of the end of your firm's accounting period. For a firm with a 30 April year-end the date is 31 October; for a 31 December year-end it is 30 June. The same six-month window applies to delivering a qualified report to the SRA.

Missing the deadline is itself a breach of the Accounts Rules and can lead to regulatory action, including conditions on the firm's authorisation in serious cases. If your firm is obtaining a report for the first time, or has changed accountants, allow a comfortable lead time. The reporting accountant needs to review your records, test a sample of client account transactions and reconciliations, and prepare the report, so the work should begin well before the six-month point rather than in the final weeks.

The Reconciliation Obligation Is Separate

It is worth being clear that the accountant's report sits alongside, and does not replace, the firm's day-to-day Accounts Rules obligations. The most important of these is reconciliation. Rule 8.3 requires the client account to be reconciled at least every five weeks, comparing the client ledger totals to the cash book and to the bank statement, with the reconciliation signed off by the COFA or a manager.

This obligation applies whether or not the firm needs an accountant's report. An exempt firm must still reconcile every five weeks and keep the records, and the SRA can ask to see them at any time. A firm that relies on the exemption but cannot produce its reconciliations has a compliance problem regardless of the report position.

What the Report Covers

The report is a limited assurance engagement, not a full audit. The reporting accountant tests a sample of client account transactions, reviews the firm's reconciliations, and checks that client money has been received, held, paid and recorded in line with the SRA Accounts Rules. Where the accountant identifies breaches, they form a professional judgement on whether the breaches are serious enough to qualify the report.

The most common issues found in practice are familiar ones: reconciliations not completed within the five-week window, client money and office money mixed in the same account, client balances held longer than necessary without being returned, client money recorded incorrectly in the accounting system, and using a client account to provide banking facilities in breach of Rule 3.3. Sound systems and a COFA who reviews procedures regularly prevent most of them, which in turn keeps the annual report unqualified.

Who Can Prepare the Report?

The reporting accountant must be a member of a recognised supervisory body (such as ICAEW, ACCA or ICAS) holding a current practising certificate, and must be independent of the firm. They cannot be a partner, member or employee of the firm. Because the SRA Accounts Rules are specialised, an accountant who works regularly with solicitor firms will recognise the common pitfalls and can flag issues in time to correct them before the report is finalised, rather than after.

How Accounts for Lawyers Can Help

We prepare SRA accountant's reports for solicitor firms across England and Wales, from sole-practitioner conveyancers to multi-partner LLPs. We work with your COFA to make sure the report is accurate and obtained in good time, and we help you build the day-to-day controls that keep it unqualified year on year.

If you are not sure whether your firm even needs a report this year, that is exactly the trigger question this guide is about, and we can help you answer it. We can review your client money position against the Rule 12.2 routes and confirm where you stand. We also provide COFA compliance support to help you keep proper records throughout the year, and a free firm health check to surface any gaps before the deadline.

For the wider framework, read our SRA Accounts Rules essentials guide, and for the exemption arithmetic in full, see the companion guide on the SRA accountant's report exemption thresholds.

Final Thoughts

The requirement comes down to one trigger and one switch. Holding or receiving client money at any time in the accounting period triggers the obligation to obtain a report. The Rule 12.2 exemption (the Legal Aid route, or an average of £10,000 and a maximum of £250,000) can switch it off. If a report is required, obtain it within six months of the period end, and deliver it to the SRA only if it is qualified.

Because the exemption is judged over the whole period, the safest approach is to know your client money position in-year rather than reconstruct it afterwards. If you are unsure whether the trigger has fired or whether you still qualify for the exemption, speak to a legal-sector-specialist accountant before you assume either way.