SRA Accounts Rules: What's Changed and What Firms Must Do

A practical guide to the SRA Accounts Rules for UK law firms; what the rules require, what's changed in recent years, and how to stay compliant without making accounting harder than it needs to be.

The SRA Accounts Rules are one of the most fundamental compliance obligations for any UK law firm that holds client money. Get them wrong and the consequences are serious; SRA intervention, loss of authorisation, and potential claims from clients whose money has been mishandled.

Yet many firms treat the Accounts Rules as a once-a-year conversation with their reporting accountant, rather than an ongoing operational discipline. This guide covers what the rules require, what has changed, and how firms can stay compliant day to day.

The current SRA Accounts Rules

The SRA Accounts Rules were substantially rewritten in 2019 and have been updated since. The current version is shorter and more principles-based than the old rules; the SRA moved away from prescriptive requirements towards a framework that gives firms flexibility in how they comply, provided they meet the underlying principles.

The core principles are:

Client money is kept separate from firm money; client funds must be held in a client account, not the firm's office account
Client money is used only for the client's matter; you cannot use one client's money to pay another client's disbursements
Accounting records are accurate and up to date; the firm must be able to show, at any point, exactly how much client money it holds and for whom
Reconciliations are completed regularly; the firm must reconcile client accounts at least every 5 weeks (though most firms do it monthly or more frequently)

What has changed

2019 rewrite

The 2019 rewrite simplified the rules significantly:

Shorter; from 50+ pages of prescriptive rules to a much shorter principles-based framework
No requirement for separate client accounts per matter; firms can hold all client money in a single client account, with internal accounting records showing the balance per client
No requirement for an accountant's report every year; firms only need an accountant's report if they hold client money, and the report is only required if the firm identifies a material breach or if the SRA requests it
More flexibility on interest; the rules on interest are less prescriptive, though firms must still account to clients for interest earned on their money

Key current requirements

Despite the simplification, the core requirements remain strict:

Rule 2: Client money

Client money includes:

Money held or received for a client (including payments on account)
Money held for the payment of disbursements
Money held for the payment of the firm's costs where the client has paid in advance

Client money does NOT include:

The firm's own money (fees earned, interest received)
Money held in a joint account with a client (though special rules apply)

Rule 3: Client accounts

Client money must be held in a client account at a bank or building society. The account must be:

Clearly identified as a client account (the account name must include the word "client")
Separate from the firm's office account
Reconciled at least every 5 weeks

Rule 4: Use of client money

Client money can only be used:

For the purpose for which it was given to the firm
To pay the firm's costs if the client has been invoiced and has agreed the firm may draw from the client account

You cannot:

Use client A's money to pay client B's disbursements
Transfer client money to the office account before issuing a bill
Hold client money in the office account "temporarily"

Rule 5: Withdrawals

Withdrawals from the client account must be:

Properly authorised
Supported by documentation (an invoice, a disbursement receipt, a transfer request)
Recorded in the accounting records

This is where many firms fall down; withdrawing from the client account without proper documentation. See our legal billing guide for how to structure the billing-to-withdrawal workflow.

Common compliance failures

The most common Accounts Rules failures identified by the SRA and reporting accountants are:

1. Failed reconciliations

The firm does not reconcile the client account within the required period. This is often because:

No one is assigned to do the reconciliation
The firm uses a manual spreadsheet that doesn't match the bank statement
The firm has multiple client accounts and misses one

2. Client money in the office account

Client money finds its way into the office account; usually because a client pays an invoice that includes a payment on account, and the payment is not split between the office and client accounts.

3. Unbilled withdrawals

The firm transfers money from the client account to the office account before issuing a bill. This is a clear breach; the client's money cannot be used to pay the firm's costs until the client has been invoiced and has agreed to the transfer.

4. Residual balances

Small amounts of client money left in the client account after the matter has closed. Over time, these accumulate and create a reconciliation problem. The firm should have a policy for dealing with matter closure; including returning or transferring residual balances within a reasonable period.

5. Mixed-use accounts

Some firms still use a single account for both client and office money. This is a clear breach of the rules; client money must be in a separate, clearly named client account.

How to stay compliant

Keep good accounting records

The firm's accounting records must show:

The balance on each client account
The balance held for each client
All transfers between client and office accounts
All payments into and out of the client account

These records must be accurate, up to date, and available for inspection by the SRA at any time. See our guide on document management for law firms for how to store accounting records.

Reconcile regularly

Reconcile the client account at least every 5 weeks. Most firms reconcile monthly; some reconcile weekly or even daily. The more frequently you reconcile, the easier it is to spot and fix problems.

The reconciliation must compare:

The bank statement balance
The client account ledger balance
The sum of individual client balances

All three must match. If they don't, the difference must be identified and resolved.

Have clear withdrawal procedures

Every withdrawal from the client account must be:

Authorised by a fee earner or partner
Supported by documentation (bill, disbursement receipt, transfer request)
Recorded in the accounting records

This is where practice management software helps; it can enforce the requirement for a bill before a transfer, and record the authorisation automatically.

Deal with residual balances promptly

When a matter closes, any remaining client balance should be:

Returned to the client
Transferred to the office account (if the firm is owed fees and the client has been billed)
Held in the client account (if there is a reason to retain; e.g., a dispute)

Residual balances that sit in the client account for months or years are a compliance problem. Have a policy; review closed matters quarterly and clear any remaining balances.

Get an accountant's report when required

The firm must obtain an accountant's report if:

It holds client money (the report confirms the firm's compliance with the Accounts Rules)
The SRA requests one
The firm identifies a material breach

Even though the rules no longer require an annual report in all cases, most firms still obtain one as good practice. The report provides independent assurance that the firm's accounting is compliant.

Where OrdoLux fits

OrdoLux includes an SRA-compliant client and office account ledger built into the matter workspace. Every transaction; client payment, disbursement, fee transfer, interim bill; is recorded in the ledger with a full audit trail.

OrdoLux enforces the key compliance requirements:

No transfer from client to office account without a corresponding bill
Stripe payments are automatically allocated to the correct account (client or office)
The ledger reconciles with Xero and QuickBooks so the firm's accountant sees the same data
Residual balances are visible on closed matters, prompting the firm to clear them

See all features or book a demo.