Withdrawals from a client account

Version 9 of the Handbook was published on 1 April 2014. For more information, please click "History" above.

Rule 20: Withdrawals from a client account

20.1

Client money may only be withdrawn from a client account when it is:

(a)

properly required for a payment to or on behalf of the client (or other person on whose behalf the money is being held);

(b)

properly required for a payment in the execution of a particular trust, including the purchase of an investment (other than money) in accordance with the trustee's powers;

(c)

properly required for payment of a disbursement on behalf of the client or trust;

(d)

properly required in full or partial reimbursement of money spent by you on behalf of the client or trust;

(e)

transferred to another client account;

(f)

withdrawn on the client's instructions, provided the instructions are for the client's convenience and are given in writing, or are given by other means and confirmed by you to the client in writing;

(g)

transferred to an account other than a client account (such as an account outside England and Wales), or retained in cash, by a trustee in the proper performance of his or her duties;

(h)

a refund to you of an advance no longer required to fund a payment on behalf of a client or trust (see rule 14.2(b));

(i)

money which has been paid into the account in breach of the rules (for example, money paid into the wrong separate designated client account) - see rule 20.5 below;

(j)

money not covered by (a) to (i) above, where you comply with the conditions set out in rule 20.2; or

(k)

money not covered by (a) to (i) above, withdrawn from the account on the written authorisation of the SRA. The SRA may impose a condition that you pay the money to a charity which gives an indemnity against any legitimate claim subsequently made for the sum received.

20.2

A withdrawal of client money under rule 20.1(j) above may be made only where the amount held does not exceed £50 in relation to any one individual client or trust matter and you:

(a)

establish the identity of the owner of the money, or make reasonable attempts to do so;

(b)

make adequate attempts to ascertain the proper destination of the money, and to return it to the rightful owner, unless the reasonable costs of doing so are likely to be excessive in relation to the amount held;

(c)

pay the funds to a charity;

(d)

record the steps taken in accordance with rule 20.2(a)-(c) above and retain those records, together with all relevant documentation (including receipts from the charity), in accordance with rule 29.16 and 29.17(a); and

(e)

keep a central register in accordance with rule 29.22.

20.3

Office money may only be withdrawn from a client account when it is:

(a)

money properly paid into the account to open or maintain it under rule 14.2(a);

(b)

properly required for payment of your costs under rule 17.2 and 17.3;

(c)

the whole or part of a payment into a client account under rule 17.1(c);

(d)

part of a mixed payment placed in a client account under rule 18.2(b); or

(e)

money which has been paid into a client account in breach of the rules (for example, interest wrongly credited to a general client account) - see rule 20.5 below.

20.4

Out-of-scope money must be withdrawn from a client account in accordance with rules 17.1(a), 17.1(c) and 18 as appropriate.

20.5

Money which has been paid into a client account in breach of the rules must be withdrawn from the client account promptly upon discovery.

20.6

Money withdrawn in relation to a particular client or trust from a general client account must not exceed the money held on behalf of that client or trust in all your general client accounts (except as provided in rule 20.7 below).

20.7

You may make a payment in respect of a particular client or trust out of a general client account, even if no money (or insufficient money) is held for that client or trust in your general client account(s), provided:

(a)

sufficient money is held for that client or trust in a separate designated client account; and

(b)

the appropriate transfer from the separate designated client account to a general client account is made immediately.

20.8

Money held for a client or trust in a separate designated client account must not be used for payments for another client or trust.

20.9

A client account must not be overdrawn, except in the following circumstances:

(a)

A separate designated client account operated in your capacity as trustee can be overdrawn if you make payments on behalf of the trust (for example, inheritance tax) before realising sufficient assets to cover the payments.

(b)

If a sole practitioner dies and his or her client accounts are frozen, overdrawn client accounts can be operated in accordance with the rules to the extent of the money held in the frozen accounts.

Guidance notes

(i)

Withdrawals in favour of firm, and for payment of disbursements

(a)

Disbursements to be paid direct from a client account, or already paid out of your own money, can be withdrawn under rule 20.1(c) or (d) in advance of preparing a bill of costs. Money to be withdrawn from a client account for the payment of costs (fees and disbursements) under rule 17.2 and 17.3 becomes office money and is dealt with under rule 20.3(b).

(b)

Money is "spent" under rule 20.1(d) at the time when you despatch a cheque, unless the cheque is to be held to your order. Money is also regarded as "spent" by the use of a credit account, so that, for example, search fees, taxi fares and courier charges incurred in this way may be transferred to your office account.

(c)

See rule 21.4 for the way in which a withdrawal from a client account in your favour must be effected.

(ii)

Cheques payable to banks, building societies, etc.

(a)

In order to protect client money against misappropriation when cheques are made payable to banks, building societies or other large institutions, it is strongly recommended that you add the name and number of the account after the payee's name.

(iii)

Drawing against uncleared cheques

(a)

You should use discretion in drawing against a cheque received from or on behalf of a client before it has been cleared. If the cheque is not met, other clients' money will have been used to make the payment in breach of the rules (see rule 7 (duty to remedy breaches)). You may be able to avoid a breach of the rules by instructing the bank or building society to charge all unpaid credits to your office or personal account.

(iv)

Non-receipt of electronic payments

(a)

If you withdraw money from a general client account on the strength of information that an electronic payment is on its way, but the electronic payment does not arrive, you will have used other clients' money in breach of the rules. See also rule 7 (duty to remedy breaches).

(v)

Withdrawals on instructions

(a)

One of the reasons why a client might authorise a withdrawal under rule 20.1(f) might be to have the money transferred to a type of account other than a client account. If so, the requirements of rule 15 must be complied with.

(vi)

Withdrawals where the rightful owner cannot be traced, on the SRA's authorisation and without SRA authorisation

(a)

Applications for authorisation under rule 20.1(k) should be made to the Professional Ethics Guidance Team, who can advise on the criteria which must normally be met for authorisation to be given. You may under rule 20.1(j) pay to a charity sums of £50 or less per client or trust matter without the SRA's authorisation, provided the safeguards set out in rule 20.2 are followed. You may, however, if you prefer, apply to the SRA for prior authorisation in all cases.

(b)

You will need to apply to the SRA, whatever the amount involved, if the money to be withdrawn is not to be paid to a charity. This situation might arise, for example, if you have been unable to deliver a bill of costs because the client has become untraceable and so cannot make a transfer from client account to office account in accordance with rule 17.2-17.3.

(c)

After a practice has been wound up, surplus balances are sometimes discovered in an old client account. This money remains subject to rule 20 and rule 21. An application can be made to the SRA under rule 20.1(k).