You are three weeks out from FLK2. A practice question lands: a firm receives £4,800 from a client, £2,000 of which is a payment on account of costs and £2,800 for a court fee and counsel's brief fee. Where does the money go? Which ledger, which column, debit or credit? You stare at four plausible answers, pick one, and get it wrong — not because you do not know the SRA Accounts Rules, but because the mechanics of the ledger have never quite clicked.
That is the pattern I see every sitting. Solicitor Accounts is the smallest subject on the SQE1 syllabus by volume and one of the most generous by return. The rules are short. The arithmetic is simple. What trips candidates is speed under exam conditions — 180 single best answer questions across five hours twenty minutes in FLK2, and you cannot afford to spend four minutes drawing out a ledger by hand.
Client money in SQE1 FLK2: what it is and where it must sit
Everything in this subject flows from one question: is this client money or business money? Under Rule 2.1 of the SRA Accounts Rules 2019, client money is money you hold or receive relating to regulated services delivered to a client; on behalf of a third party in relation to regulated services (for example as trustee, attorney or deputy); as trustee or holder of a specified office or appointment; or in respect of your fees and unpaid disbursements received before delivery of a bill for the same.
That last limb is the one examiners love. Money received in advance of a bill is client money. The moment a bill is delivered, the money earmarked for your costs becomes business money — and Rule 4.3 requires it to be transferred out of the client account within 14 days.
Client money must be paid promptly into a client account (Rule 2.3), kept separate from the firm's own money (Rule 4.1), and returned promptly once there is no longer any proper reason to hold it (Rule 2.5). Two rules sit alongside these and generate a steady stream of questions:
- Rule 3.3 — you must not use a client account to provide banking facilities. Payments in and withdrawals out must relate to the delivery of regulated services. A client asking you to hold sale proceeds "for a few months while I decide" is a red flag, not a favour.
- Rule 5.3 — you only withdraw client money if sufficient funds are held for that specific client. No borrowing from Client B to cover Client A's completion shortfall, even for an hour.
Exam habit worth building: before you touch the numbers, label every sum in the fact pattern "C" or "B". Roughly half the wrong answers in a Solicitor Accounts MCQ are wrong only because the money was placed on the wrong side of the divide.
Breaches and the duty to put things right
Rule 6 imposes a duty to correct breaches promptly on discovery. Money improperly withdrawn from a client account must be replaced immediately — and, crucially, replaced from the firm's own money, not from other clients' funds. If a question offers you an answer that "corrects" a shortfall by moving money between client ledgers, discard it on sight.
Double entry without the headache: a system for FLK2
Here is the mental model that makes Solicitor Accounts fast. Every ledger has a client side and a business side. Every transaction produces two entries of equal value — one debit, one credit. And the client ledger is written from the firm's point of view, so client money you hold is a liability: it sits as a credit on the client side of the client ledger, matched by a debit to the client side of the cash account.
Four movements cover the overwhelming majority of questions:
- Receipt of client money. DR cash (client), CR client ledger (client).
- Payment out of client money. CR cash (client), DR client ledger (client).
- Delivery of a bill. DR client ledger (business) with profit costs and with VAT; CR profit costs account; CR HMRC VAT account. No cash moves — a bill is not a payment.
- Transfer of costs from client to business account. Two pairs of entries: CR cash (client) and DR client ledger (client); then DR cash (business) and CR client ledger (business).
Notice the transfer. It is one movement of money but four entries, because the money leaves the client bank account and arrives in the business bank account. Candidates who lose marks here almost always record only two entries.
Back to our opening scenario. The £4,800 is entirely client money on receipt — the £2,000 on account of costs has arrived before any bill, and the £2,800 is destined for disbursements. So: DR cash (client) £4,800, CR client ledger (client) £4,800. Pay the court fee from client money; hold the balance. Once the bill goes out, the £2,000 (plus VAT, if it is covered) can be transferred to business. Straightforward once the labels are on.
Disbursements and VAT: the agency and principal methods
VAT is where otherwise strong candidates come unstuck, and it is worth twenty minutes of properly focused study rather than an anxious skim.
Ask who the supply is made to. If the supplier's invoice is addressed to the client — counsel's fee note made out to the client is the classic example — the firm is acting as the client's agent. The VAT is the client's, the firm does not reclaim it as input tax, and the full VAT-inclusive sum can simply be paid out of client money. Nothing passes through the firm's VAT account. This is the agency method.
If the invoice is addressed to the firm — a surveyor's report or an estate agent's commission instructed by the firm — the supply is to the firm. Under the principal method the firm reclaims the input VAT, and then charges output VAT on the onward supply to the client as part of its own bill. Court fees, Land Registry fees and stamp duty land tax are outside the scope of VAT entirely, so no VAT entries arise at all.
One-line test to memorise: whose name is on the invoice? Client's name → agency method, VAT-inclusive payment from client account, no firm VAT entry. Firm's name → principal method, VAT split out, firm's VAT account engaged.
Records, reconciliations and the accountant's report
Rule 8 is examinable and often under-revised because it feels administrative. Do not skip it — the questions are short and the marks are cheap.
A firm must keep accurate, contemporaneous and chronological records: client ledgers identified by client name and matter description, showing all receipts and payments of client money and running balances; separate records for business money; and a cash book showing a running total of all client money held. Records must be retained for at least six years.
Then the timing points, which are pure recall marks:
- Bank statements must be obtained at least every five weeks.
- A reconciliation of the bank statement balance with the cash book balance and the total of client ledger balances must be completed at least every five weeks, and signed off by the COFA or a manager. Differences must be promptly investigated and resolved.
- An accountant's report must be obtained within six months of the end of the accounting period, and delivered to the SRA if it is qualified.
- Exemption from obtaining a report applies where all client money held is money from the Legal Aid Agency, or where in the accounting period the balance held did not exceed an average of £10,000 and a maximum of £250,000.
Interest sits in Rule 7: the firm must account to the client for a fair and reasonable sum of interest where it holds client money, though a different written arrangement may be agreed. Expect a question testing whether an agreement to pay no interest at all can ever be appropriate — it can, provided the client has been given sufficient information to give informed consent, but the fairness standard is the anchor.
How to drill Solicitor Accounts before your SQE1 sitting
This subject rewards repetition more than reading. A routine that works:
- Write out the four core double-entry movements from blank memory, once a day, for a fortnight. It should take under ninety seconds by the end.
- Build a single index card of the numbers: 14 days for costs transfers, five weeks for statements and reconciliations, six months for the accountant's report, six years for records, £10,000 average and £250,000 maximum for the exemption. Numbers are the easiest marks in FLK2 and the easiest to lose.
- Practise mixed-receipt questions specifically — a single cheque covering costs, VAT and disbursements. Split it before you do anything else.
- When you get a question wrong, write one sentence explaining why the correct answer beats yours. "Wrong side of the ledger" and "forgot the second pair of entries" will show up repeatedly, and naming the error is what stops it recurring.
And a word on strategy: Solicitor Accounts questions tend to be quick wins. If you can bank them in ninety seconds each, you buy yourself time for the longer Property Law and Practice and Trusts scenarios later in the paper. That trade is worth engineering deliberately.
How CELE SQE can help
We have been teaching SQE candidates since the very first sitting in 2021, and our FLK2 materials cover Solicitor Accounts alongside Property Law and Practice, Land Law, Trusts, Wills and Criminal Law and Practice. If you want structured teaching, our SQE1 courses run at £3,720 (long-term), £2,750 (mid-term) and £1,750 (short-term), with a single-FLK option at half those prices and £150 off for early booking or if you are within three months of your exam. Prefer to drill on your own? The SQE1 question bank subscription is £575 a month, and textbooks are £950 for the full set or £570 for a single FLK. Questions are welcome any time — WeChat SQE100, [email protected], or celebar.com.
