Client money and office money — SQE1 Accounts question
A worked single-best-answer question on client money and office money, with why each wrong option is wrong — the way SQE1 traps candidates.
Ferris & Co acts for Mrs Lowe on two matters. On Monday the firm receives three payments from her: £1,500 'on account of costs' for her new boundary dispute, before any work has been billed; £600 in payment of a bill for her lease renewal which the firm delivered to her last week; and £120 reimbursing a local search fee which the firm paid last month out of its own office account.
Which of the sums received is client money under the SRA Accounts Rules?
- AAll three sums, because each was received from a client in connection with regulated services.
- BOnly the £1,500 received on account of costs; the other two sums are office money.
- CThe £1,500 and the £120 are client money, but the £600 is office money.
- DOnly the £600, because it relates to a bill that has been delivered.
- ENone of the sums, because they all relate to the firm's own charges.
Show answer and reasoning
Rule: Money received for fees and unpaid disbursements before a bill is delivered is client money; money for billed fees or for disbursements already paid is office money.
- A Money for a delivered bill and reimbursement of a paid disbursement belong to the firm and are office money. (wrong rule)
- C The search fee had already been paid, so the £120 is not money for an unpaid disbursement and is office money. (right rule, wrong facts)
- D Once a bill has been delivered, money paid to settle it belongs to the firm and is office money. (wrong rule)
- E Fees received before a bill is delivered are client money under rule 2.1(d). (wrong rule)
Source: SRA Accounts Rules 2019, r 2.1(d)