Summary Colourful & Easy to Use LPC Notes - Solicitors Accounts
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Course
LPC - Legal Practice Course
Institution
LPC - Legal Practice Course
LPC Notes - Solicitors Accounts
Distinction level complete exam notes for Solicitors Accounts
The University of Law specific (2023)
Notes include SAC 1 and SAC 2
Disclaimer - may contain typos, user is advised to make appropriate and suitable updates.
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Outcomes
By the end of this Unit, you should be able to:
1. Identify whether a receipt or payment involves client money.
2. Make the appropriate entries to record receipts and payments of client money and the firm’s own money and
the issuing of bills (including VAT on professional charges).
3. Identify circumstances in which it is appropriate to make transfers of money to and from client account and
learn how to make the correct entries to record a transfer of money from one account to another.
4. Identify the person for whom money is held in a probate matter and make appropriate entries to record
a change.
5. Identify the person for whom money is held in property transactions and make appropriate entries to show
this.
6. Calculate the amount of money required from or due to a client on a property transaction and produce an
appropriate Financial Statement that can be sent to the client.
7. Identify disbursements treated for VAT purposes on the agency or principal basis and recognise the
significance of providing a VAT invoice to registered clients.
8. Identify occasions on which a client is entitled to receive interest on client money and the basis of
calculation.
9. Explain the advantages and disadvantages to the solicitor of the two methods of dealing with entitlement
to interest.
Unit Workshop Tasks
In this Unit Workshop you will:
1. Identify client money and explain how to deal with it.
2. Complete a ledger on the administration of an estate.
3. Explain how to deal with dishonoured cheques and abatement of costs.
4. Complete a ledger on a property transaction.
5. Draft a Financial Statement.
6. Explain how to deal with disbursements subject to VAT and how to account to clients for interest.
1
, Solicitors Accounts
Solicitors Account Rules 2019
Rule 2: Client Money
2.1 "Client money" is money held or received by you:
(a) relating to regulated services delivered by you to a client;
(b) on behalf of a third party in relation to regulated services delivered by you (such as money held as agent, stakeholder or
held to the sender's order);
(c) as a trustee or as the holder of a specified office or appointment, such as donee of a power of attorney, Court of
Protection deputy or trustee of an occupational pension scheme;
(d) in respect of your fees and any unpaid disbursements if held or received prior to delivery of a bill for the
same.
2.2 In circumstances where the only client money you hold or receive falls within rule 2.1(d) above, and:
(a) any money held for disbursements relates to costs or expenses incurred by you on behalf of your client and for which you
are liable; and
(b) you do not for any other reason maintain a client account;
you are not required to hold this money in a client account if you have informed your client in advance of where and how the
money will be held. Rules 2.3, 2.4, 4.1, 7, 8.1(b) and (c) and 12 do not apply to client money held outside of a client account in
accordance with this rule.
2.3 You ensure that client money is paid promptly into a client account unless:
(a) in relation to money falling within 2.1(c), to do so would conflict with your obligations under rules or regulations relating
to your specified office or appointment;
(b) the client money represents payments received from the Legal Aid Agency for your costs; or
(c) you agree in the individual circumstances an alternative arrangement in writing with the client, or the third party, for
whom the money is held.
2.4 You ensure that client money is available on demand unless you agree an alternative arrangement in writing with the client, or the
third party for whom the money is held.
2.5 You ensure that client money is returned promptly to the client, or the third party for whom the money is held as soon as there is
no longer any proper reason to hold those funds.
Rule 3: Client account
3.3 You must not use a client account to provide banking facilities to clients or third parties. Payments into, and transfers or
withdrawals from a client account must be in respect of the delivery by you of regulated services.
Rule 4: Client money must be kept separate
4.1 You keep client money separate from money belonging to the authorised body.
4.2 You ensure that you allocate promptly any funds from mixed payments you receive to the correct client account or business
account.
4.3 Where you are holding client money and some or all of that money will be used to pay your costs:
(a) you must give a bill of costs, or other written notification of the costs incurred, to the client or the paying party;
(b) this must be done before you transfer any client money from a client account to make the payment; and
(c) any such payment must be for the specific sum identified in the bill of costs, or other written notification of the costs
incurred, and covered by the amount held for the particular client or third party.
Rule 5: Withdrawals from client account
5.3 You only withdraw client money from a client account if sufficient funds are held on behalf of that specific client or third party to
make the payment.
Rule 6: Duty to correct breaches upon discovery
6.1 You correct any breaches of these rules promptly upon discovery. Any money improperly withheld or withdrawn from a client
account must be immediately paid into the account or replaced as appropriate.
Rule 7: Payment of interest
7.1 You account to clients or third parties for a fair sum of interest on any client money held by you on their behalf.
7.2 You may by a written agreement come to a different arrangement with the client or the third party for whom the money is held as
to the payment of interest, but you must provide sufficient information to enable them to give informed consent.
Rule 8: Client accounting systems and controls
8.1 You keep and maintain accurate, contemporaneous, and chronological records to:
(a) record in client ledgers identified by the client's name and an appropriate description of the matter to which they relate:
I. all receipts and payments which are client money on the client side of the client ledger account;
II. all receipts and payments which are not client money and bills of costs including transactions through the
authorised body's accounts on the business side of the client ledger account;
(b) maintain a list of all the balances shown by the client ledger accounts of the liabilities to clients (and third parties), with a
running total of the balances; and
(c) provide a cash book showing a running total of all transactions through client accounts held or operated by you.
2
, Solicitors Accounts
EXAM INFORMATION
4 sections in 2 hours
• Client ledgers ONLY NOT Cash Account (Property, Probate, Sale of business, Litigation matter) –
more than one client in exam: how many clients?
o Use pencil in exam.
• Written questions on the Rules – 64 marks with above
• Financial Statement (in the context of property transaction) – 16 marks
o Use pencil in exam.
• 5 MCQ’s - 20 marks
o Be aware of ‘must, never and always’ as some rules have exceptions .
Identify whether a receipt or payment involves client money.
CATEGORIES OF MONEY
Ch 9 p89
*A client bank account must be held at a bank or building society in England and Wales and must
include the name of the firm and the word ‘client’
CLIENT MONEY (RULE 2.1) BUSINESS MONEY
Client Money is money held or received by Money held in solicitors accounts which doesn’t not fall
solicitors: within the definition of Client Money will be Business
a) Relating a regulated services delivered by Money.
solicitors to clients.
b) On behalf of a 3rd party (i.e., the mortgage EXAMPLES OF BUSINESS MONEY:
provider) in relation to regulated services • Money held or received in connection with
delivered by solicitors (i.e., money held as running the firm.
agent, stakeholder or held to the sender’s order). • Monies received in respect of fees due to
c) As a trustee or as the holder of a specified the firm.
office or appointment, such as a done of a • Money received in respect of disbursements
power of attorney, Court of Protection (but not professional disbursements) that
deputy or trustee of an occupational pension have been incurred by the firm; and
scheme. • Money paid in by a partner of the firm.
d) In respect of legal fees and any unpaid • Petty Cash.
disbursements if held or received prior to • Invoices addressed to the solicitor’s firm.
delivery of a bill for the same.
In Payment of Bills
Rule 2.1 (a person for whom you act) – Is a receipt • Money received for billed professional charges
of client money? and disbursements – both paid and unpaid
falls outside the definition of client money.
2.1(b) Money held as stakeholder • The entire sum must be paid into the business
2.1(c) Money held as trustee bank account.
2.1(d) Payments generally on account of
professional charges and unpaid Rule 8.1(a)(ii)
disbursements is a payment of client • The receipt must be recorded as a debit entry
money on the business side of client ledger.
EXAMPLES OF CLIENT MONEY: Rule 5.3
• Money received from your client's • If firm holds no money in client bank account,
opponent in settlement of your client's the payment can only be made from firm’s own
claim. business bank account.
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