Rule 12.2 of the SRA Accounts Rules exempts a firm whose client money all came from the Legal Aid Agency, or whose client money balance stayed within an average of £10,000 and a maximum of £250,000. Enter your reconciliation balances and see which side of the line the firm is on.
The total of all client accounts, plus any joint accounts and clients' own accounts you operate as signatory, as shown by the statements you obtain under rule 8.2.
If left blank, the check uses the highest reconciliation balance you entered.
This is information, not advice. It applies the rule 12.2 test to the figures you enter; it does not check the figures.
Under Rule 12.1 a firm that held or received client money at any time in an accounting period, or operated a joint account or a client's own account as signatory, must obtain an accountant's report for that period within six months of its end. Rule 12.2 then removes the requirement in two cases:
The second case has two limbs and the firm must meet both. A firm whose balance averaged £11,000 and never came near £250,000 needs a report.
The SRA's guidance is to add up the client money balances at every reconciliation in the accounting period and divide by the number of reconciliations. Rule 12.3 sets what goes into each balance: the total of all client accounts the firm holds or operates, plus any joint accounts and clients' own accounts it operates as signatory, as shown by the statements obtained under rule 8.2. A firm reconciling every five weeks, as Rule 8.3 requires, has about eleven balances in a twelve-month period.
An illustrative example. Ten reconciliation balances of £9,000 and one of £24,000, taken just after a completion, add up to £114,000. Divided by eleven, the average is £10,364. The maximum of £24,000 is far inside the £250,000 limb, but the average is over £10,000, so the firm needs a report for that period.
The thresholds apply to accounting periods ending on or after 1 November 2015.
Under Rule 12.4 the SRA can require a report on reasonable notice even from an exempt firm, for example where the firm stops holding client money or closes, or where it considers it in the public interest. A firm that is closing generally needs a final report.
On 2 June 2026 the SRA announced that it had submitted new client money rules to the Legal Services Board. Under them, every firm holding client money is expected to have to submit its annual accountant's report to the SRA, qualified or clean, and exempt firms are expected to have to declare their exemption. The SRA expects the rules to come into force early next year, subject to Legal Services Board approval. Until then, rule 12.1(b) applies: the report is delivered to the SRA only if it is qualified. The SRA's announcement.
Rule 12.5 requires the report to be prepared and signed by a member of ICAEW, ICAS, ACCA or ICAI who is, or works for, a registered auditor. We arrange it with Colin Ellis of Anstey Bond LLP, ICAEW and a Responsible Individual, who prepares and signs it, at a fixed fee from £1,250 + VAT a year (from £1,500 a year including VAT), quoted for larger firms. We also do the monthly client account reconciliation the report is tested against, for £150 a month + VAT.
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