On 14 December 2022, the SRA published an open consultation on minor amendments to the Standards and Regulations, including proposed changes to the Accounts Rules 2019 following feedback received by the SRA from external stakeholders.
We saw significant reforms to the SRA Handbook in 2019, which, since their implementation, are causing some practical difficulties for both law firms, and the SRA themselves, and further clarification for the some of the rules is required, including billing clients in advance.
The SRA detail in the consultation that firms were unclear as to when it would be appropriate to take client money for anticipated costs from their client bank account into their business bank account, as the current wording of the rules doesn’t stop firms from issuing a bill and then transferring money from their client account for the anticipated fees in advance of the work being done.
In practical terms, this means that regardless of whether work has been completed by the solicitor for a client, once an invoice has been presented, the money ceases to be client funds and changes to become funds belonging to the business.
The SRA has previously raised concerns about billing in advance, as it would result in the client’s money losing the protection it would have had if retained in the client bank account.
There is also the risk of the company suffering financially and even going into administration or liquidation when the work hasn’t yet been completed, resulting in the client having paid for a service that hasn’t been received.
That being said, smaller law firms especially could benefit from billing in advance, for example where a client account is not held or there may be a delay between the work being done and completed. Billing in advance therefore provides a steady stream of cash flow into the firm’s business account.
The SRA plans to clarify that “in order to transfer funds from client account into the firm’s business account, the bill, or other written notification of costs, must be for costs that have already been incurred”.
Does this change things? Possibly, but it is likely that most firms will not invoice until the work, or the majority of it, is completed.
However, if a firm does want to bill in advance, the 2019 SRA Rules (Rule 5.1(b)) state that:
“You can only withdraw client money from a client account…following receipt of instructions from the client or the third party for whom the money is held”.
In other words, if the client has agreed in writing to a different arrangement, for example taking funds in advance of work being carried out, then this may be acceptable as long as the client is informed of the associated risks.
2019 Rule 5.1(b) only refers to the withdrawal from client account, so if the money was deposited into the office account – would the rule still apply? This is an area which is not clear and needs to be clarified by the SRA.
The deadline for submission of responses to SRA Standards and Regulations: minor amendments will close on 8 March 2023.
Get in touch
If you are unsure on how the changes to the SRA Standards and Regulations may affect your law firm and how you bill your clients, get in touch with our legal specialist, Helen Clayton, by clicking the button below.
