Transferring client money for costs: bill first (SRA Accounts Rules 4.3)
A firm acting for a client on the purchase of a house holds £3,000 in client account, received from the client 'on account of costs' at the start of the matter. The fee earner has now done work worth £1,200 plus VAT (£1,440 in total). She wants the cashier to transfer £1,440 to the business (office) account today and plans to send the client a bill next week.
Which of the following best describes what the firm must do before transferring the money?
Choose one answer to see the reasoning.
Worked answer
Correct answer E: Give the client a bill or other written notification of the costs, then transfer only the specific sum identified in it.
THE RULE TO REMEMBER
Client money may be transferred to pay the firm's costs only after a bill or other written notification has been given, and only for the specific sum identified.
Transferring client money for costs: bill first (SRA Accounts Rules 4.3)
Money held for fees before a bill is delivered is client money (rule 2.1(d) SRA Accounts Rules) and must be kept in client account. Under rule 4.3, where client money is to be used to pay the firm's costs, the firm must give a bill of costs or other written notification of the costs incurred to the client before transferring any client money, and the transfer must be for the specific sum identified and covered by funds held for that client.
Why A is wrong: Unbilled money on account of costs is client money under rule 2.1(d).
Why B is wrong: Rule 4.3 requires a bill or other written notification; a phone call is not enough.
Why C is wrong: Only the specific sum billed may be transferred; moving unbilled client money to business account breaches rules 4.1 and 4.3.
Why D is wrong: Client money can be used to pay costs once rule 4.3 has been complied with.
That's today's practice done. Another featured question tomorrow.
Related questions
Client account must not be used as a banking facility (SRA Accounts Rules, rule 3.3)
Which of the following best describes how the firm should respond?
Interest on estate money held in client account during an administration (rule 7)
Which of the following best describes the firm's obligation regarding interest?
Paying out more than is held for an estate client and replacing the shortfall (rules 5.3 and 6.1)
Which of the following best describes what the firm must now do?
A GOOD HABIT, DELIVERED
Tomorrow's question.
In your inbox.
One free question a day, with the answer and reasoning.
No course pitches. Just your daily practice.