What the SRA Accounts Rules are for
The SRA Accounts Rules protect client money. Every pound a client pays your firm before a matter completes belongs to them, not to you. The Rules create a precise regime around how that money is held, reconciled and reported so clients can be confident it will be there when they need it.
This guide covers the operational mechanics: the reconciliation cycle, the accountant's report trigger, the Rule 12.2 exemption, and how to think about sizing a reserve. It is framed as operational context. Your COFA and your accountant are the right people for firm-specific regulatory decisions.
Rule 8.3: the five-weekly reconciliation
You must reconcile the client account at least every five weeks. The reconciliation is a three-way check:
- Client ledger total (the sum of all client balances in your practice management system)
- Cash book balance (your internal record of receipts and payments)
- Bank statement balance
All three must agree. Any difference is a discrepancy and must be investigated immediately. Records must be kept for at least six years.
The COFA (or a suitably senior manager) must sign off each reconciliation. The sign-off is not a formality: it is the COFA's personal confirmation that the firm's client money is intact. If you do not have a formal sign-off process, put one in place before the next reconciliation is due.
Rule 3.3: the banking facility prohibition
You cannot use the client account as a banking facility for clients. Every receipt into, transfer between or withdrawal from the client account must be for the purpose of delivering regulated legal services to the client.
In practice this means you cannot hold money for a client where there is no legal matter underpinning it, receive funds and hold them "in case they are needed later", or act as a quasi-bank for a client's cash management. This is one of the most common and most serious breaches. If you are unsure whether a particular transaction is permissible, your COFA should advise. We can help you design compliant processes around payment flows, but enforcement questions belong to the SRA.
Rule 7: client interest
You must account to clients for a fair sum of interest earned on their money, judged by the amount held and the duration. This is a fairness test, not a fixed rate. A firm holding a large completion fund for a few days owes a different duty than one holding a small retainer over many months. The Rules permit a written agreement to disapply this obligation, which some firms use for small or short-term balances. The agreement must be in place before the money is held, not retrospectively.
Rule 12: the accountant's report
Rule 12.1: the trigger
If your firm held or received client money during the accounting period, Rule 12.1 applies. You must obtain an accountant's report within six months of the end of that period. This is the primary trigger. The question is binary: did you hold client money? If yes, you need a report unless the exemption applies.
A firm that held no client money at any point in the period does not meet the trigger at all. Separately from the exemption, if you are considering restructuring to avoid holding client money, that is a significant operational and regulatory decision requiring careful advice from your COFA and an SRA regulatory specialist.
Rule 12.2: the small-balance exemption
Even if the Rule 12.1 trigger is met, your firm may be exempt from the reporting requirement if, in the accounting period:
- The average client-account balance did not exceed £10,000; AND
- The maximum client-account balance at any point did not exceed £250,000.
Both conditions must be satisfied. Average alone does not suffice, and neither does maximum alone. The threshold is £250,000 for the maximum balance, not any lower figure.
The Rule 12.2 exemption sheet in the accompanying model lets you enter your firm's actual period-average and period-maximum balances and see immediately whether both limbs are met. If either limb fails, the exemption does not apply and you need a report.
Choosing an accountant for the report
The accountant must be qualified and independent: a sole practitioner cannot prepare their own firm's report. The report must be submitted to the SRA within six months of the accounting period end, as noted above. We prepare SRA accountants' reports for law firms and can advise on what the accountant will look at, what records you need to have ready, and how to minimise disruption to the audit.
Sizing an operational reserve
The SRA Accounts Rules do not mandate a firm-side reserve. The Rules focus on client money protection, not on your firm's working capital. However, many firms hold a reserve to cover operational cash-flow gaps, including unexpected timing differences in client-money receipts and disbursements.
The reserve sizing sheet in the accompanying model uses three inputs: the number of open matters, a transaction volume band (low / moderate / high / very high), and the predominant matter type. It multiplies the typical average balance per matter by a risk factor to produce a central estimate, with a low and high range. This is an operational risk-management tool, not an SRA requirement.
Reserve sizing decisions should involve your COFA and your accountant, who understand your firm's actual cash-flow patterns and risk profile.
Using the model
The accompanying Excel workbook contains four sheets:
- Reconciliation: a five-weekly three-way reconciliation template, pre-formatted for client ledger, cash book and bank statement with a difference cell that must be £0 and a COFA sign-off row.
- Reserve sizing: enter your open matter count, volume band and matter type. The model computes a central reserve estimate with a low-to-high range, using the same risk factors as the online calculator.
- Rule 12.2 check: enter your period-average and period-maximum client-account balances to see whether both exemption limbs are met. The verdict cell uses the correct thresholds: average not exceeding £10,000 AND maximum not exceeding £250,000.
- Notes: the operational and regulatory context behind each sheet, including the Rule 3.3 banking-facility prohibition, the Rule 8.3 reconciliation requirement and the Rule 12.2 exemption test.
The Rates sheet is locked and imports the same constants as the online calculator, so the spreadsheet and the on-site tool can never give different answers.
Getting a specialist view
Client-account compliance is one of the areas where a small process gap can escalate quickly. If you are unsure whether your reconciliation process is correct, whether your firm qualifies for the Rule 12.2 exemption, or whether a particular payment flow is permissible, a conversation with a specialist solicitors' accountant is the safest next step. The first call is free.