SRA Accounts Rules – clarification of the new rules on operation of a clients own account

Ahead of the 25 November 2019 introduction of the new rules, the SRA have released in October 2019 additional documents on their website clarifying aspects of the new rules.

Operation of a client’s own account

New Rule 10.1 suggests that 5-weekly reconciliations should be performed for all instances where the firm operates a client’s own account as a signatory; one such example being as a Deputy in a Court of Protection matter.

The SRA has now stated that where ledgers are not maintained for a client’s own account and will not have access to monthly bank statements, the firm will not be regarded as in breach of the above Rule provided that the firm has sufficient internal controls in place to ensure that such matters are adequately recorded and ensuring that client monies are not at risk.

The SRA has provided examples of records which should be maintained, which are:

  • central register of the client’s own accounts that you operate,
  • separate record of the transactions carried out by you or on your behalf in respect of the client’s own account, and
  • record of your bills and other notification of costs relating to that client’s matter

In the above scenario, the guidance from the SRA follows the path the Rules have headed with less emphasis being placed on the detailed Rules themselves, and more on the internal controls the firm has in place to ensure compliance with the Rules. These controls will therefore increasingly be checked by your reporting accountant as part of your annual SRA Accounts Rules compliance review.

Should you have any questions regarding the above, or any aspects of the new SRA Accounts Rules, please do not hesitate to contact Sam Evans or any member of the Professional Practice team on 01772 821021.

Link:

https://www.sra.org.uk/solicitors/guidance/ethics-guidance/clients-own-account/

SRA Accounts Rules – Clarification of the new rules for disbursement payments

Ahead of the 25 November 2019 introduction of the new rules, the SRA held their annual Compliance Officers Conference on 30 October 2019.

Disbursements

New rule 2.1(d) gives one definition of client money as money held or received by the firm “in respect of your fees and any unpaid disbursements if held or received prior to delivery of a bill for the same.”  New Rule 4.3 further states that the client must be given a bill of costs, or other written notification of costs prior to the transfer of funds being made from the client to office account.

This suggested that a bill would have to be issued in advance of monies being transferred from the client to office bank accounts, even solely in respect of a disbursement. This would be a significant change from the current rules.

However, at the Conference it was stated that a Guidance Note would be published by the SRA clarifying their stance on the above. Some background was however given to their position during the Conference which suggested the following:

  • Disbursements become office money under Rule 2.1(d) once they have been incurred. Per the SRA, this would be when third party providing the service states it has been completed, either by raising an invoice or other methods of correspondence.
  • In respect of “written notification of costs”, the SRA would also determine that the above correspondence from the third party would be adequate, even though it is not addressed to the client.

This means, that in the SRA’s words, “firms acting as they are now should remain compliant once the new Rules have been introduced.”

For further information on the above, or any aspects of the new SRA Accounts Rules, please do not hesitate to contact Sam Evans or any member of the Professional Practices team on 01772 821021.

Below is also a link to the SRA webpage regarding the Compliance Officer Conference, which has videos of some of the speaker’s presentation and copies of their slides, which may prove useful to review in advance of 25 November.

Links:https://www.sra.org.uk/sra/news/events/on-demand-events/colp-cofa-2019/

SRA Accounts Rules – clarification of the new rules on payments of residual balances

Ahead of the 25 November 2019 introduction of the new rules, the SRA have released in October 2019 additional documents on their website clarifying aspects of the new rules.

Payments of residual balances to charity

The SRA have issued further guidance regarding prescribed circumstances for the SRA authorising a withdrawal from the client account under new Rule 5.1(c). One such instance is the payment of client funds to charity, in the situation where the individual client matter balance is less than £500, and the firm has made a sufficient effort in order to trace the rightful recipient of these funds. This brings in line with the current Rule 20.2.

In their guidance note, the SRA have provided information regarding the steps it expects a firm to follow before paying these funds to a charity. These are:

  1. that the balance is paid to a charity of your choice;
  2. you have taken reasonable steps to return the money to the rightful owner. The reasonableness of such steps will depend on:
    • the age of the residual balance;
    • the amount of the residual balance;
    • if you have access to the client’s most up to date contact details;
    • if not, the costs associated with tracing your client;
  3. you record the steps taken to return the money to the rightful owner and retain those records, together with all relevant documentation for at least six years;
  4. you keep appropriate accounting records, including:
    • a central register which records the name of the rightful owner on whose behalf the money was held, the amount, name of the recipient charity (and their charity number) and the date of the payment; and
    • all receipts from the charity and confirmation of any indemnity provided against any legitimate claim subsequently made for the sum they have received; and
  5. you do not deduct from the residual balance any costs incurred in attempting to trace or communicate with the rightful owner.

As is currently the case, authority must be obtained from the SRA prior to the payment of an individual client matter balance in excess of £500 being paid to a charity.

In the above scenario, the guidance from the SRA follows the path the Rules have headed with less emphasis being placed on the detailed Rules themselves, and more on the internal controls the firm has in place to ensure compliance with the Rules. These controls will therefore increasingly be checked by your reporting accountant as part of your annual SRA Accounts Rules compliance review.

Should you have any questions regarding the above, or any aspects of the new SRA Accounts Rules, please do not hesitate to contact Sam Evans or any member of the Professional Practice team on 01772 821021.

Link:

https://www.sra.org.uk/solicitors/standards-regulations/withdraw-client-money/

Disposals of UK land – changes to the capital gains tax compliance regime for non-UK resident individuals

What’s new from 6 April 2019

The non-residents capital gains tax (NRCGT) rules have been extended to include non-residential property. The rules now apply to direct and indirect disposals of interests in all UK land (i.e. both residential and commercial).

A direct disposal is a disposal of land, whereas an indirect disposal is a disposal of shares in a company (whether the company is UK resident or not) and at least 75% of the value of the shares is derived from UK land. This briefing note covers the rules surrounding direct disposals for individuals and further advice should be sought for disposals by non-UK resident companies.

Background

The NRCGT rules were introduced on 6 April 2015 and apply to disposals of residential properties from this date. Only the gain arising after 5 April 2015 is chargeable and there are different ways of calculating the gain depending upon the individual’s circumstances.

The new rules now extend NRCGT to cover gains on commercial property, but only to the extent that the asset has increased in value since 5 April 2019.

Compliance

All persons making a NRCGT disposal have 30 days following the conveyance of the property (not the date of exchange) to submit an on line NRCGT Return to HMRC. A return must be filed even if there is no tax payable or the property is sold at a loss.

Late filing and payment penalties may be charged if the 30 day deadline is missed.

The Return must include a calculation of the chargeable gain or allowable loss and the tax due must be paid within 30 days of conveyance (i.e. the same deadline as the filing of the Return).

The rate of tax depends on whether the property is residential or non-residential and the level of the individual’s other income for the year.

The compliance regime has also been revised from 6 April 2019 to require all non-residents to make a payment on account of the CGT due on the disposal, irrespective of whether or not the individual is within the Self-Assessment regime. 

Potential problem areas

Due to the short filing and payment deadline not all of the relevant information may be known within that timeframe. It may be necessary to include reasonable estimates in the computations and then amend the Return when the actual details are available. In addition, it may not be possible to correctly calculate the amount of tax payable because the rate of CGT depends on an individual’s UK taxable income for the whole tax year and this may not be known at the time of submitting the return.

How we can help

We would be happy to calculate the capital gains tax position on the sale of the UK property and advise upon which method of calculation is most beneficial for your client. We can also file the NRCGT Return with HMRC.

Should you wish to discuss this in further detail please contact a member of our Professional Practice Team on 01772 821021.

Our annual CSR results for 2019 are in!

We have had another fantastic year at MHA Moore & Smalley. After sending out the survey to over 4200 clients, we have received an overall satisfaction score of 96%, a 1% increase on last years, already great, result.

This score is based on clients’ answers in response to questions that rate us in terms of communication, technical ability, commitment to each individual business, and our CRM.

Thank you to everyone who got involved. Delivering outstanding client service is at the heart of everything we do. Therefore it is wonderful to know that we are delivering on our mission, vision and values, as we continue to improve and strive to be the best we can be.

Take a look at this year’s results below

MHA Legal Benchmarking report 2019

MHA’s Legal Benchmarking Report reveals how the changing legal landscape and a fall in fee income has had a positive impact on many practices, prompting them to scrutinise their profitability drivers and reduce expenditure, resulting in improved profit per equity partner figures.

Key findings

  • Growth in start-ups and niche ‘boutique’ practices
  • Fee income trends a mixed bag – only two categories achieve a significant rise
  • All practice sizes – except one – report a marked improvement in Profit per Equity Partner (PEP)
  • Significant decrease in partner and practice funding
  • Lock up levels remain static, although smaller partner firms struggle to gain control
  • Firms under pressure to be more agile, increase investment in IT and offer flexible working patterns