Your Legal Accounting Compliance Guide

Running a law firm is hard enough without worrying about accounting rules—but ignoring them can cost you big time.

Why Legal Accounting Isn’t Just Box-Ticking

 Let’s be real—most solicitors didn’t start their careers dreaming about legal accounting. I’ve worked with dozens of firms that tried to manage it on their own. And almost every time, they ran into late filings, SRA breaches, or tax missteps that could’ve been avoided. 

Understanding Legal Accounting & Legal Accountancy

So, what exactly is legal accounting? It’s how solicitors and law firms track, record, and report their financial activity—especially when dealing with client money. It’s not just about adding numbers. It’s about staying compliant with the Solicitors Regulation Authority (SRA) rules. Here’s how it’s different from general accounting: 

• Legal accountancy follows SRA rules for client accounts.
• It ensures client money is never mixed with firm money.
• It includes regular reconciliations and special audits.

 If you’re not following the rules closely, even a small error can lead to fines or, worse, SRA intervention. 

Why Law Firms Need Specialised Accountants

 As a financial tax advisor, I’ve seen what happens when firms use general accountants who aren’t familiar with legal compliance. Here’s why you need accountants for law firms who know what they’re doing: 

• SRA compliance isn’t optional—it’s checked regularly.
• Legal clients expect professionalism, including financial accuracy.
• Mistakes can cost you not just money, but your firm’s reputation.

 One of our clients, a mid-size firm in Preston, came to us after a surprise audit revealed breaches they didn’t even know existed. We cleaned up their books and guided them through the audit process. That saved them from being flagged on the SRA’s radar again. 

Legal Accounting Services That Matter

 Every law firm has different needs, but the basics are the same. Here’s what legal accounting services usually include: 

1. Daily Bookkeeping & Matter Balancing

 You need to track all money going in and out, client by client. Every transaction must link to a case. 

2. Monthly Bank Reconciliation

 This is where most errors pop up. If your client ledger and bank statement don’t match, that’s a red flag to the SRA. 

3. Payroll & Staff Expenses

 You must keep your internal accounts tight to avoid draining client funds. 

4. Year-End Reports & Tax

 You’ll need support from a corporate tax accountant to file returns, manage VAT, and keep HMRC off your back. 

5. Dividend Planning

 I always get asked, “How much can I pay myself?” With proper planning, you can draw fair dividends without breaking SRA or tax rules. 

The SRA Accounting Rules – Explained Without Jargon

 Here’s the truth: The SRA rules aren’t impossible to understand. They just need to be respected. As an SRA accounting and tax advisor, I guide law firms through these key requirements: 

• Client funds must be always separated from office funds.
• Daily checks and monthly reconciliations are mandatory.
• Two signatories are required when moving client money.
• Annual SRA reports may be needed depending on activity.

 Common Mistakes That Lead to Trouble 

• Paying staff directly from the client account
• Delayed reconciliations
• No written policies for money handling
• Missing audit reports

 We once reviewed a sole practitioner’s books in Lancashire and found a £9,800 client overdraw that had gone unnoticed for 3 months. That’s exactly what triggers SRA inquiries. 

SRA Audit Support – Don’t Go It Alone

 When the SRA audit letter lands in your inbox, panic sets in. That’s why we always say—prepare like you’ll be audited tomorrow.

What happens during an SRA audit? 

• Auditors review your client accounts for the past 12 months
• They check for reconciliations, breaches, and recordkeeping
• Any issues go into a report—some get flagged to the SRA

 Why You Need an SRA Advisor Having an SRA advisor on your side helps you: 

• Identify issues before the audit
• Respond to auditor questions with confidence
• File necessary reports without missing deadlines

 In one case, we helped a Manchester-based firm reduce potential penalties by 80% just by preparing proper documentation ahead of the audit. 

Auditors for Law Firms: What They Really Do

 When people hear “audit,” they often think of punishment. But auditors for law firms play a protective role if used proactively.

Types of Audits 

• Internal audit – Done by your own accountant to catch issues
• External audit – Usually annual, sometimes triggered by the SRA

 A good auditor doesn’t just spot problems—they guide you to fix them. We run internal audits for clients every quarter so that surprises never happen during official checks. 

Why Work with Local Experts: Accountants in Preston

 Let me tell you—working with a local team makes a world of difference. We’re a team of accountants in Preston Lancashire, and we serve firms throughout the Northwest. Why choose local? 

• We know your market and the common risks
• Face-to-face meetings for better communication
• Fast support during audits or HMRC checks

 A Preston solicitor we worked with said, “I used to dread audit season. Now I barely think about it.” That’s the difference when you have someone who truly understands law firm accounting. 

Choosing the Right Accounting Partner

 So, what should you look for in a legal accounting firm? Here’s what I recommend: 

• Proven experience with legal accounting services
• Familiarity with SRA audit rules and reports
• Support for both compliance and tax strategy
• Ability to explain things in plain English

 Don’t just settle for a general corporate tax accountant. Law firms need tailored support that covers everything from client account rules to dividend strategies. 

Final Takeaways: Your Legal Accounting Game Plan

Whether you're a sole practitioner or managing a multi-office law firm, don’t wait for an audit notice to start thinking about compliance. Let’s talk. I can walk you through a free checklist to spot your firm’s top risks—and we’ll fix them before they become problems. Need help right now? Our team of legal accountants, auditors for law firms, and SRA advisors are just a call away.