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Clients' money frequently asked questions

These questions are based on those received by our helplines and identified on monitoring reviews. If we haven’t covered your question below, please contact our helpline on +44 (0)1908 248 250.

1. What do I need to do before I can receive clients' money?

Read ICAEW’s Clients' Money Regulations to understand the requirements for holding clients’ money. You can get more help from our client money helpsheet.

  • Verify the identity of the client.
  • Open an account at a bank which meets the requirements set out in the Clients’ Money Regulations. This account should have ‘client’ or ‘clients’ in the title.
  • Get written acknowledgement from the bank of the prescribed terms of the account.
  • Appoint an alternate if you’re a sole practitioner or sole director. This doesn’t need to be an accountant.
2. I provide payroll services to clients. My firm receives the exact amount from my client for the net pay and HMRC liabilities which my firm then pays out immediately. I have been accounting for these in a separate bank account that is an office account as there is no net effect. Can I do this?
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No. The transactions fall within the definition of clients’ money in the regulations. You must account for them in a clients’ bank account which, for accounting convenience, you may want to be a separate designated account.
3. How often do I need to reconcile my client accounts?
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At least every five weeks you must reconcile the total of the balances on all clients’ bank accounts with the total of the credit balances on the clients’ ledger accounts or equivalent. If an individual account is overdrawn, a difference will arise, which the firm must make good immediately on discovery. Clients’ bank and ledger accounts cannot be in debit.
4. The bank has been charging the clients’ account with bank charges, so there is a difference on reconciliation with the clients’ ledger. What action should I take?
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Make good the difference by making a payment from the office bank account. Instruct the bank to debit the office account directly with the charges in future.
5. Some of my clients pay my fees on account by standing order. The standing orders are paid into a clients’ bank account set up solely for this purpose. Can I do this?
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No. The regulations specifically exclude fees in advance from the definition of clients’ money. You should open a separate office bank account, re-designate the clients’ bank account or get these fees paid into an existing office account.
6. My firm offers a fee protection insurance (FPI) service to clients. Are premiums clients’ money?
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This question only arises when it is a regulated FPI policy. If a policy is unregulated then the firm is paying the premium and clients are being charged a fee by the firm.

If it is a regulated policy then the situation is more complex. The decision on whether the premiums are clients’ money or not depends on when the client is ‘on risk’ (is covered by the policy). This varies from insurance provider to insurance provider.

Abbey Tax and Croner Taxwise regulated policies put clients on risk when they pay over the premium to the firm. Hence you should not consider these payments as clients’ money and these should be banked in your firm’s office account.

PFP regulated policies only put clients on risk when PFP are provided with the client’s details. So these payments are clients’ money when your firm receives them and should be banked in a clients’ account. 

If your firm uses an insurer not listed above, you will need information from the insurer about when the client is on risk to enable you to make a decision on where premiums should be banked.
7. There are some old balances on my clients’ ledger and I have not been able to trace the clients to repay them. What should I do?
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You could pay them to a registered charity, as long as:

  • the client has been untraced for five years; and 
  • for amounts over £10,000 for each client, the registered charity provides an indemnity against a future claim by the client.
8. When should I open a separate designated clients’ bank account?
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If you expect to hold an amount exceeding £10,000 for a client for more than 30 days, you should open a separate bank account in the name of that client or designated with a number allocated to the client (and with ‘client’ in the title).

You can’t over-ride this requirement by getting the client’s consent to keep money in the general account.

9. My firm will be receiving tax repayments on behalf of clients. We will not take our fees out of the repayments but will pay the amount in full to the client on the day of receipt or the following day. Do we need to open a clients’ bank account?
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Yes. This is clients’ money as defined in the regulations and the clients’ interest must be protected by accounting for it in a clients’ bank account, which, in accordance with the bank’s acknowledgment of the prescribed terms, in effect has trust status. It makes no difference that the amounts are promptly paid out in full.
10. My firm receives tax repayments on behalf of clients. We take our fees out of the repayments and pay any balance to the client. Do we need to get written permission from the client to do this?
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If you have sent your client an invoice showing the fees you are going to deduct from the tax repayment 30 days or more before you take your fees, you don’t need to get written permission from the client. Nevertheless, it would be best practice to tell them that is what you’re going to do. If you take your fees before that time, you need written permission from the client to do so.
11. Do client bank accounts have to be interest-bearing and, if so, does my firm have to pay the interest to the clients with balances in client bank accounts?
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If the interest earned would be material, you must place clients’ money in an interest-bearing account and pay or credit all interest earned to the client, or as the client instructs in writing. You can agree a sum below which interest will not be paid and you can include this in your engagement letter to your client. You’ll find guidance on what is considered to be material interest in the Clients’ Money Regulations.
12. Increasingly, my clients pay their fees directly by electronic transfer to my practice account. One client recently included their tax payment (which was to be passed to HMRC) without my knowledge. The money was in the practice account for two weeks before I realised what had happened and could make the payment to HMRC. I understand this is a breach of the Clients’ Money Regulations . How do I address this issue?
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With the increasing use of electronic transfers, it’s important to monitor the practice account regularly to identify misplaced payments. You could build this into the internal controls you already have to administer the account.

As the payment was received in error, and corrective action taken as soon as it was identified, no further action is necessary. It would, however, be wise to keep a note on your file to show what happened and the action you took to correct the situation. You might also want to ask clients to separate payments to your firm from payments to others and to notify you when a payment is made. Apart from the client money issue, there’s a risk of late payment penalties if HMRC is involved. One way to do this might be to include a suitable note in your engagement letter.

This answer demonstrates a solution based on a simple set of circumstances. If your situation is different or you have concerns, please call the Ethics helpline on +44 (0)1908 248 250.

13. Who can authorise withdrawals from the client account?
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You can only make a withdrawal when a principal has signed an authority in respect of that withdrawal. Or principals can delegate authority to an employee in writing to authorise withdrawals.

The person who signs the cheque or authorises the bank transfer does not have to be a principal. Please consider who the most appropriate signatories are as part of the controls over client money. For example, you might consider that only firm principals can be signatories and that two signatures/approvals are required for each withdrawal from a client bank account.

14. What is the annual compliance review, required by Regulation 27?
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You simply need to undertake a review to ensure that clients' money accounts are operated in accordance with the Clients’ Money Regulations.

This includes checking that the accounts were correctly set up; withdrawals were supported by the appropriate authorities; and the periodic reconciliations have taken place.

Our Clients’ Money Regulations Compliance Review provides a compliance review programme.
15. Why is it compulsory for firms wholly owned and/or controlled by a single member (sole principal), and which hold client's monies, to have an alternate?
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Because it ensures there’s a mechanism for clients to access their money should you unfortunately be incapacitated.
16. Does an alternate need to be a chartered accountant?
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Regulation 31 is worded widely. There’s no need for your alternate to be a chartered accountant. If you’re an auditor, you could use the person with whom you have established consultation arrangements. You just need to be sure that you ask someone who will take this responsibility seriously.

You should also consider whether your alternate should be a signatory on the account.

17. The regulations extend in some way to clients' own accounts. Can you explain?
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This is only if you have a power or control over such accounts. Although it does not meet the definition of clients' money, you must ensure that you have the client's specific written authority, acknowledged by the bank, before exercising that power or control over the clients' own account.

You must also ensure that such accounts are used for the purposes for which the client intended and maintain records of the transactions you undertake.

18. I am a sole practitioner. Regulation 27 requires an annual review by a principal who is not involved with clients' money. How can I satisfy this requirement?
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The regulation does say 'wherever possible' but it can be difficult to review your own work. You could consider asking another firm (that may be your alternate) to carry out the review.
19 I’ve been told I need confirmation from my bank of the prescribed terms of the account (or trust status letter), what is this?

This is a requirement of regulation 9 of the Clients' Money Regulations. Firms are required to get confirmation to protect funds held in the account from set off. This is to make it clear the money in the account doesn’t belong to the firm.

This letter confirms your bank agrees that monies held in the account you use for clients’ money are held in trust for your clients and do not belong to your firm.

Your letter should include:

  • Clients’ money account name(s), account number(s) and sort code(s).
  • Statements that;
    • all money standing to the credit of that account is held by the firm as clients’ money and that the bank is not entitled to combine the account with any other account or exercise any right to set off or counterclaim against money in that account in respect of any money owed to it on any other account of the firm;
    • interest payable on the money in the account must be credited to that account; and
    • the bank must describe the account in its records to make it clear the money in the account does not belong to the firm.        

Banks may want to use their own template for the confirmation and this is acceptable providing the wording incorporates the meaning of the three statements above. Check the wording of the response from your bank and if in doubt please contact our technical helpline +44 (0)1908 248 250.

20 I am struggling to get confirmation from my bank of the prescribed terms of the account. What should I do?

Some firms have difficulty with individual branches of different banks. A common area of confusion is when the bank contact thinks the firm needs a bank letter for audit purposes, so the process may not be straightforward.

Some firms ask their bank contact for a trust status letter or confirmation letter. This approach seems to create problems when the bank contact is unfamiliar with clients’ money accounts and/or their own bank’s procedures.

We recommend you write a letter to your contact at the bank, explaining that you need this confirmation to comply with ICAEW’s Client Money Regulations. Your letter should include the relevant details from Regulation 9 and a request for an authorised signatory to countersign and return the letter to confirm the terms to you. We also recommend you give your contact a call to discuss your request – this can help to clarify the information you need from the bank.

If you have tried the steps above and you don’t get a response within 20 business days you need to move your clients’ money to another bank. Until you get that confirmation you can’t be sure that the funds in the account are protected.

We sometimes see cases when accounts have been open for some time before the bank finally tells the firm that its clients’ bank account is not a proper clients’ money account. This is why the confirmation is so important.