SRA Handbook

Categories of money

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Version 8 of the Handbook was published on 01/10/2013. For more information, please click 'History' Above

Rule 12: Categories of money

12.1

These rules do not apply to out-of-scope money, save to the limited extent specified in the rules. All other money held or received in the course of practice falls into one or other of the following categories:

(a)

"client money" - money held or received for a client or as trustee, and all other money which is not office money; or

(b)

"office money" - money which belongs to you or your firm.

12.2

"Client money" includes money held or received:

(a)

as trustee;

(b)

as agent, bailee, stakeholder, or as the donee of a power of attorney, or as a liquidator, trustee in bankruptcy, Court of Protection deputy or trustee of an occupational pension scheme;

(c)

for payment of unpaid professional disbursements;

(d)

for payment of stamp duty land tax, Land Registry registration fees, telegraphic transfer fees and court fees (but see also guidance note (i));

(e)

as a payment on account of costs generally;

(f)

as a financial benefit paid in respect of a client, unless the client has given you prior authority to retain it (see Chapter 1, outcome 1.15 and indicative behaviour 1.20 of the SRA Code of Conduct);

(g)

jointly with another person outside the firm.

12.3

Money held to the sender's order is client money.

(a)

If money is accepted on such terms, it must be held in a client account.

(b)

However, a cheque or draft sent to you on terms that the cheque or draft (as opposed to the money) is held to the sender's order must not be presented for payment without the sender's consent.

(c)

The recipient is always subject to a professional obligation to return the money, or the cheque or draft, to the sender on demand.

12.4

An advance to a client which is paid into a client account under rule 14.2(b) becomes client money.

12.5

A cheque in respect of damages and costs, made payable to the client but paid into a client account under rule 14.2(e), becomes client money.

12.6

Endorsing a cheque or draft over to a client or employer in the course of practice amounts to receiving client money. Even if no other client money is held or received, you must comply with some provisions of the rules, e.g.:

(a)

rule 7 (duty to remedy breaches);

(b)

rule 29 (accounting records for client accounts, etc.);

(c)

rule 31 (production of documents, information and explanations);

(d)

rule 32 (delivery of accountants' reports).

12.7

"Office money" includes:

(a)

money held or received in connection with running the firm; for example, PAYE, or VAT on the firm's fees;

(b)

interest on general client accounts; the bank or building society should be instructed to credit such interest to the office account - but see also rule 14.2(d);

(c)

payments received in respect of:

(i)

fees due to the firm against a bill or written notification of costs incurred, which has been given or sent in accordance with rule 17.2;

(ii)

disbursements already paid by the firm;

(iii)

disbursements incurred but not yet paid by the firm, but excluding unpaid professional disbursements;

(iv)

money paid for or towards an agreed fee;

(d)

money held in a client account and earmarked for costs under rule 17.3;

(e)

money held or received from the Legal Aid Agency as a regular payment (see rule 19.2).

12.8

If a firm conducts a personal or office transaction - for instance, conveyancing - for a principal (or for a number of principals), money held or received on behalf of the principal(s) is office money. However, other circumstances may mean that the money is client money, for example:

(a)

If the firm also acts for a lender, money held or received on behalf of the lender is client money.

(b)

If the firm acts for a principal and, for example, his or her spouse jointly (assuming the spouse is not a partner in the practice), money received on their joint behalf is client money.

(c)

If the firm acts for an assistant solicitor, consultant or non-solicitor employee, or (if it is a company) a director, or (if it is an LLP) a member, he or she is regarded as a client of the firm, and money received for him or her is client money - even if he or she conducts the matter personally.

Guidance notes

(i)

Money held or received for payment of stamp duty land tax, Land Registry registration fees, telegraphic transfer fees and court fees is not office money because you have not incurred an obligation to HMRC, the Land Registry, the bank or the court to pay the duty or fee; (on the other hand, if you have already paid the duty or fee out of your own resources, or have received the service on credit, or the bank's charge for a telegraphic transfer forms part of your profit costs, payment subsequently received from the client will be office money);

(ii)

Money held:

(a)

by liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes;

(b)

jointly with another person outside the practice (for example, with a lay trustee, or with another firm);

is client money, subject to a limited application of the rules - see rules 8 and 9. The donee of a power of attorney, who operates the donor's own account, is also subject to a limited application of the rules (see rule 10), although money kept in the donor's own account is not "client money" because it is not "held or received" by the donee.

(iii)

If the SRA intervenes in a practice, money from the practice is held or received by the SRA's intervention agent subject to a trust under Schedule 1 paragraph 7(1) of the Solicitors Act 1974, and is therefore client money. The same provision requires the agent to pay the money into a client account.

(iv)

Money held or received in the course of employment when practising in one of the capacities listed in rule 5 (persons exempt from the rules) is not "client money" for the purpose of the rules, because the rules do not apply at all.

(v)

The receipt of out-of-scope money of an MDP which is mixed with other types of money is dealt with in rules 17 and 18.

(vi)

See Appendices 1 and 2 (which do not form part of the rules) for a summary of the effect of the rules and the treatment of different types of money.