Mixed payment from a buyer client covering completion money and a delivered bill (rule 4.2)
Fenwick Rahman Solicitors acts for Jerome on his purchase of a flat. The firm has already delivered a bill of costs to Jerome for £1,200 including VAT, which is unpaid. Two days before completion Jerome sends a single bank transfer of £61,200 to the firm's general client account: £60,000 is the balance of the purchase money needed for completion, and £1,200 is to pay the bill.
Which of the following best describes how the firm should deal with the £61,200?
Choose one answer to see the reasoning.
Worked answer
Correct answer A: Keep the £60,000 in client account for completion and promptly transfer the £1,200 to business account.
THE RULE TO REMEMBER
A mixed payment must be allocated promptly, with client money kept in client account and the firm's money (e.g. for a delivered bill) moved to business account.
Mixed payment from a buyer client covering completion money and a delivered bill (rule 4.2)
The SRA Glossary defines a mixed payment as a payment that includes both client money and non-client money. The £60,000 for completion is client money. Because the bill for £1,200 has already been delivered, money received to pay it is the firm's own money, not client money (rule 2.1(d) treats money for fees as client money only if received before delivery of a bill). Rule 4.1 requires client money to be kept separate from the firm's money, and rule 4.2 requires the firm to 'allocate promptly any funds from mixed payments you receive to the correct client account or business account'. The payment has properly been received into client account, so the firm should keep the £60,000 there and promptly transfer the £1,200 to business account. Leaving the firm's money in client account until completion would not be prompt allocation, and moving the completion money to business account would breach rules 2.3 and 4.1.
Why B is wrong: Rule 4.2 requires prompt allocation; holding the firm's own money in client account until completion mixes it with client money.
Why C is wrong: The £60,000 is client money and must be kept in client account (rules 2.3 and 4.1).
Why D is wrong: The Rules expressly contemplate mixed payments and require prompt allocation, not refusal.
Why E is wrong: Rule 4.3 requires a bill before client money is used for costs; the bill has already been delivered, so no further bill is required.
A little more practice done.
Related questions
Transferring client money for costs: bill first (SRA Accounts Rules 4.3)
Which of the following best describes what the firm must do before transferring the money?
Client account reconciliations every five weeks (SRA Accounts Rules, rule 8.3)
Which of the following best describes the firm's obligation?
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?
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