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Withdrawals and transfers from client account — SQE1 Accounts question

A worked single-best-answer question on withdrawals and transfers from client account, with why each wrong option is wrong — the way SQE1 traps candidates.

Withdrawals and transfers from client account

Harbour Solicitors holds £3,000 in client account received from Mr Fenn on account of costs in a probate dispute. By the end of the month, the fee earner has done work worth £1,500 plus VAT of £300. Mr Fenn's engagement letter states that money on account will be applied towards the firm's costs. The managing partner wants to transfer £1,800 to office account at the month end, before any bill is sent, to help the firm's cash flow.

Which of the following best describes when the firm may transfer money from client account in payment of its costs?

  1. AOnly after it has given Mr Fenn a bill or other written notification of the costs incurred, and then only for the sum specified in it.
  2. BNow, because the work has been done and the money is due to the firm.
  3. CNow, because Mr Fenn agreed in the engagement letter that money on account would be applied to costs.
  4. DOnly once the matter has been concluded and a final bill has been delivered.
  5. EOnly once Mr Fenn has confirmed in writing that he approves the bill.
Show answer and reasoning
A is the best answer. Rule 4.3 of the SRA Accounts Rules provides that before transferring client money to pay its costs, the firm must give the client a bill of costs or other written notification of the costs incurred. The transfer must be for the specific sum identified in that bill or notification and covered by funds held for that client. Interim bills or written notifications are acceptable, so the firm need not wait for the end of the matter.

Rule: A firm may transfer client money for its costs only after giving the client a bill or other written notification of the costs, and only for the sum specified.

  • B Work being done does not entitle the firm to transfer without first giving a bill or written notification. (wrong rule)
  • C A general agreement in the engagement letter is not a bill or written notification of the specific costs incurred. (wrong rule)
  • D The firm may bill and transfer during the matter; it need not wait for a final bill. (wrong rule)
  • E The Rules require notification to the client, not the client's approval of the bill. (wrong rule)

Source: SRA Accounts Rules 2019, r 4.3

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