ICAEW’s Clients’ Money Regulations (and ACCA’s / ICAS’s) are “prescriptive and detailed” (aka not as simple as it may seem) and non-compliance can lead to disciplinary action and hefty fines. In fact the Institutes do find year on year (from their firm visits) that a significant proportion of firms that hold clients’ money do not comply with one or more of the requirements with these being the most common issues:-
Clients’ money bank account – clients’ money must be paid into, and held in, a “specially set up client bank account” (the “general client account”) not the “office” account and indeed if over £10,000 will be held / has been held for a client for more than 30 days a specific “designated client account” for that client must be set up.
No bank letter acknowledging trust status – client accounts must be set up with the bank as “trust” accounts (to protect the clients funds and so the bank acknowledges they can’t set it off against any firm’s overdraft / loans etc) and the firm should hold written evidence from the bank acknowledging this.
No annual compliance review – all firms holding client money are required to carry out an annual clients’ money compliance review (this is mandatory). HAT’s Practice Assurance Manual contains a client money chapter and an Annual Compliance Review checklist for this purpose and we can also conduct client money reviews for you either at your firm or remotely.
Regulation 8a – payments into and out of the firm’s client bank account must relate to an “accountancy service” that is being (or has been or will be) provided by the firm. A firm’s client bank account should not be used as a “banking facility for clients” (Accountants are not “banks” if they need them clients need to set up actual bank accounts with a registered bank – however hard that may be!). ICAEW Guidance on Regulation 8a is available as this is a very “judgemental” issue sometimes and we have seen a number of firms, who think that providing “bookkeeping” or “personal tax” services for individuals means all manner of personal income and expenditure can be paid through the client accounts and have fallen foul of this regulation on a compliance visit and received disciplinary notices and fines.
Considerations for probate practitioners – money received in connection with authorised probate work must be kept separate from other clients’ money accounts.
Five-weekly reconciliations – if you hold clients’ money, you need to reconcile the client bank account at least every five weeks (so monthly is the way) and ensure the reconciled balance agrees with the total balances on each client’s ledger. Any discrepancies need to be addressed asap.
Interest – If a client bank account earns interest, you must pass this on to the client. The Clients’ Money Regulations do not include a de minimis limit, but a client bank account need only be interest bearing if ‘material’ interest is likely to accrue and the regulations do allow a client to agree in writing to an alternative treatment (hence we tend to have some wording on when interest will not be paid over in our terms of business and general client account interest is paid direct to the office account) however interest on a designated account must be paid into that account.
Alternate (sole practitioner/director of corporate practice) – Sole practitioners/directors need to arrange with someone to manage their clients’ money account in the event of their death or incapacity. This person does not have to be a chartered accountant but you need to inform the Institute as to who they are.
Useful links:-
Clients’ Money Regulations | ICAEW
Obtaining-professional-work-ACCA
Clients’ Money Regulations – ICAS
HAT Practice Assurance manual – Firmwide procedures
HAT Client money compliance review – Client Money Compliance Review Services
