SRA Accounts Rules: The Complete Compliance Guide for UK Law Firms

The SRA Accounts Rules are the backbone of trust accounting for every law firm in England and Wales. If your firm holds or receives client money, these rules decide how that money is banked, kept separate, reconciled, returned, and reported on. Get them right and they are largely invisible. Get them wrong and you risk a qualified accountant's report, an SRA investigation, and in the worst cases intervention.

This guide is the practical compliance walkthrough: what counts as client money, how the client account works, the five-weekly reconciliation, the COFA's role, when you need an accountant's report (and when you are exempt), and the breaches inspectors find most often. It is written as the hub. Where a topic deserves its own deep dive, we link to the specialist guide rather than repeating it here.

The SRA Accounts Rules 2019: What Changed and Who Is Caught

The SRA Accounts Rules 2019 came into force on 25 November 2019, replacing the far longer 2011 rules. The new version is short and principles-based: it sets outcomes and leaves more of the "how" to the firm, on the understanding that the firm builds systems appropriate to its work. That shift puts more weight on judgment and on the people responsible for compliance, rather than on box-ticking.

The rules apply to every authorised body that holds or receives client money, whether you are a sole practitioner, a partnership, an LLP, or a company or ABS. There is no de minimis on the duty to comply: whether you hold a few thousand pounds in disbursements or millions in completion funds, the same core obligations apply. The only thing that scales is the level of system and oversight a firm of your size and risk profile needs to demonstrate.

A useful framing before we go rule by rule: client money is not your money. It belongs to clients and third parties, and the rules exist to keep it that way. Almost every breach traces back to a moment where that line blurred, by accident or by drift.

What Counts as Client Money (Rule 2.1)

Under Rule 2.1, client money is money you hold or receive that falls into one of these categories:

• money relating to regulated services you deliver to a client;
• money held or received on behalf of a third party in connection with regulated services (for example, completion monies or a settlement);
• money held or received as trustee or as the holder of a specified office or appointment, such as an executor or attorney;
• money held or received in respect of your fees and any unpaid disbursements before you have delivered a bill.

The practical edge cases matter. Money received for fees you have already properly billed is the firm's money, not client money. A payment on account of costs, received before you bill, is client money until you raise a bill. Disbursements you have paid out of the firm's own funds and are recovering are not client money. Getting this classification right at the point of receipt is what keeps the office account and the client account clean, which is why many firms treat the office account versus client account split as a staff-training topic in its own right. For the full set of edge cases, see our guide to client money accounting for solicitors.

The Client Account and the Banking-Facility Prohibition (Rules 3 and 3.3)

Client money must be held in a client account. Under Rule 3, that account must be at a bank or building society in England and Wales, and its name must include the name of the firm and the word "client" so it is identifiable as a client account on its face. The point is simple: anyone looking at the account, including the bank and an inspector, should be able to see immediately that the money in it is held for clients.

Rule 4 requires you to keep client money separate from the firm's own money. The two must not be mixed. Where you receive a mixed payment (part client money, part the firm's money, such as a payment that settles a bill and leaves a balance on account), you must allocate and deal with each element correctly so that client money does not sit in the office account or vice versa.

Rule 3.3 is the rule firms most often fall foul of without realising. You must not use a client account to provide banking facilities to clients or third parties. Every payment into, and every transfer or withdrawal from, the client account must relate to the delivery of regulated services. Running unconnected money through client account as a convenience, or leaving funds sitting there after the legal matter has concluded, breaches Rule 3.3 even if no money is lost. The SRA has issued repeated warning notices on this point because it is a route used in money laundering, so inspectors look for it specifically.

Returning Client Money Promptly (Rule 2.5)

Under Rule 2.5, you must return client money promptly to the client (or the third party it belongs to) as soon as there is no longer any proper reason to hold it. "Promptly" is not a fixed number of days; it is a standard of behaviour. Once a matter is finished and any costs are dealt with, residual balances should be returned without delay rather than left to accumulate. Residual client balances are a classic finding on inspection precisely because they tend to build up quietly, and they overlap with the Rule 3.3 banking-facility problem: money held with no live reason to hold it is exactly what Rule 3.3 is aimed at.

Withdrawals Only for a Proper Purpose (Rule 5)

Rule 5 governs withdrawals from the client account. You may only withdraw client money for a proper purpose, and the withdrawal must be properly authorised and supported by appropriate records. In practice this means a withdrawal must be to pay the client, to pay a third party on the client's instruction, or to transfer money the firm has properly become entitled to (for example, costs you have billed). You cannot draw on a client balance to cover a shortfall on another matter, and you cannot pay the firm's costs out of client money before you have raised a bill that makes those costs yours.

A persistent breach in smaller firms is the round-sum or unsupported withdrawal, where money is moved without a clear, documented proper purpose. The fix is procedural: a withdrawal authorisation step, a record of the purpose, and a balance check that confirms the matter holds enough client money to cover it.

Keeping Records and Reconciling at Least Every Five Weeks (Rule 8.3)

Good records are what make every other rule auditable. You must maintain a cash book recording all client account transactions and a client ledger for each client and matter showing the running balance held. Records must be contemporaneous, accurate, and retrievable, and they must be kept for at least six years.

The control that ties the records together is the reconciliation. Under Rule 8.3, you must reconcile the client account at least every five weeks. The reconciliation is a three-way match:

• the total of the individual client ledger balances;
• against the cash book balance;
• against the client bank statement balance.

All three must agree once timing differences (such as uncleared items) are accounted for, and the reconciliation must be signed off by the COFA or a manager of the firm. Any unexplained difference is treated as a potential shortage and must be investigated and corrected promptly. Because five weeks is a ceiling and not a target, many firms reconcile monthly or weekly so problems surface early. For the mechanics of the three-way match and the breaches that come up most often, see our detailed guide to the client account reconciliation frequency and the five-week rule, and for the step-by-step process see the solicitor client account reconciliation walkthrough.

Accounting for a Fair Sum of Interest (Rule 7)

Under Rule 7, you must account to the client or third party for a fair sum of interest on client money you hold. Fairness is judged on the amount held and the length of time it is held, not on a single fixed formula, and the firm sets a clear interest policy and applies it consistently. A different arrangement is permitted where it is agreed in writing with the client, provided that is fair in the circumstances. The practical compliance step is to have a written interest policy, explain it in your client care information, and apply it rather than leave it to ad hoc decisions.

The Accountant's Report and the Rule 12.2 Exemption

A firm that has held client money during an accounting period must obtain an accountant's report from a reporting accountant within six months of the period end (Rule 12.1). The reporting accountant tests your compliance and produces a report that is either unqualified or qualified; a qualified report identifying a risk to client money must be delivered to the SRA.

There is a genuine exemption. Under Rule 12.2, a firm is exempt from obtaining the report if either of these is true:

• all the client money it held was money received from the Legal Aid Agency; or
• the client money balance did not exceed an average of £10,000 and a maximum of £250,000 across the accounting period.

Two points cause confusion. First, the test has two limbs in the second branch: you must stay within both the average of £10,000 and the maximum of £250,000. Breaching either limb takes you outside the exemption. Second, the figure is an average of £10,000, not £250: the "£250" version is a common and persistent error, so do not rely on any source that states it. The exemption removes the duty to commission an external report; it does not remove your duty to keep proper records, reconcile every five weeks, or comply with the rest of the rules. For worked examples and exactly what your COFA should monitor month to month, see our guide to the SRA accountant's report exemption thresholds, and for the report itself see the SRA accountant's report explained.

The COFA's Role

The Compliance Officer for Finance and Administration (COFA) carries primary responsibility for the firm's compliance with the Accounts Rules. The COFA does not have to perform every reconciliation personally, but must ensure the systems exist, operate, and are monitored, and must take steps to spot risks before they become breaches. In practice that means reviewing reconciliations, checking that withdrawals follow the authorisation process, confirming residual balances are being returned, and keeping a record of breaches (material and non-material) with what was done about each.

The COFA is also the person who decides, with the COLP where the issue overlaps with wider conduct, whether a breach is material and must be reported to the SRA. Early, honest disclosure of a serious problem, with evidence of prompt rectification, almost always produces a better regulatory outcome than a problem the SRA discovers later. For how the COFA carries this in practice, see our guide to COFA responsibilities for accounting.

The Breaches Inspectors Find Most Often

A handful of issues account for most Accounts Rules findings. Knowing them lets you build controls that pre-empt them:

• Late or weak reconciliations. Missing the five-week deadline, or reconciliations that are signed off without the differences actually being resolved.
• Banking-facility breaches (Rule 3.3). Running unconnected money through client account, or holding funds after the matter has ended.
• Residual client balances. Small balances left on closed matters that should have been returned promptly under Rule 2.5.
• Improper withdrawals. Taking costs from client money before billing, or round-sum transfers without a documented proper purpose (Rule 5).
• Mixing money. Client money sitting in the office account, or the firm's money left in client account, breaching Rule 4.
• Record-keeping gaps. Missing client bank statements, thin transaction narratives, or delayed posting that breaks the audit trail.

For each of these with practical fixes, see our guide to common SRA Accounts Rules breaches and how to fix them. Where a breach is material, the reporting process matters as much as the fix, which is covered in SRA breach notification: when and how to report.

Systems and Software

Dedicated legal accounting software makes compliance far easier: it maintains separate client and office ledgers, blocks transfers that would overdraw a matter, flags residual balances, and generates the reconciliation reports inspectors expect. Manual or spreadsheet systems remain permissible if they genuinely meet the requirements, but they put more weight on discipline and review.

Software does not replace understanding. The COFA and fee earners still need to know what client money is, why Rule 3.3 exists, and what a clean reconciliation looks like, because the system only enforces the rules the firm configures it to enforce. The most resilient firms pair good software with a short, written set of client-money procedures and induction training for anyone who touches the client account.

A Practical Compliance Checklist

Use this as a standing self-check against the core rules:

• Classification. Is every receipt correctly identified as client money or the firm's money at the point it arrives? (Rule 2.1)
• Account. Is client money held in a properly named client account at a bank or building society in England and Wales, kept separate from firm money? (Rules 3 and 4)
• Banking facility. Does every movement on the client account relate to regulated services, with no money parked or passed through? (Rule 3.3)
• Withdrawals. Is every withdrawal for a proper purpose, authorised, supported, and within the matter's available balance? (Rule 5)
• Return. Are residual balances returned promptly once there is no reason to hold them? (Rule 2.5)
• Interest. Is there a written, fair interest policy that is actually applied? (Rule 7)
• Reconciliation. Is the three-way reconciliation done at least every five weeks and signed off by the COFA or a manager, with differences resolved? (Rule 8.3)
• Records. Are the cash book and client ledgers contemporaneous and kept for at least six years?
• Report. If you held client money, is an accountant's report obtained within six months of the period end, unless you genuinely meet the Rule 12.2 exemption?
• Oversight. Is the COFA reviewing all of the above and keeping a breach record?

The Accounts Rules reward firms that treat client money as a continuous control rather than a year-end exercise. If your reconciliations are clean, your withdrawals are authorised, and nothing sits in client account without a live reason, the accountant's report and any SRA inspection become a confirmation rather than a worry. Where a firm wants a second pair of eyes on its client-money systems or help responding to a finding, specialist support can help you get the framework right before it is tested.