An accountant holds client money whenever the firm receives or holds money for or from a client that is not immediately due to the firm for its own account. For ICAEW firms it must go straight into a designated client bank account, fees can be taken from it only on one of three agreed bases, and the account must be reconciled at least every five weeks. Many firms avoid the burden by not holding client money at all.

What counts as client money?

ICAEW’s Clients’ Money Regulations, effective from 1 January 2017 and still the version ICAEW publishes as current, define clients’ money in regulation 3 as money in any currency, whether cash, cheque, draft or electronic transfer, which a firm holds or receives for or from a client, including money held as stakeholder, and which is not immediately due and payable to the firm for its own account. It must be held in the currency received unless the client instructs otherwise in writing.

Some things are outside the definition:

  • Fees paid in advance for agreed work, if clearly identifiable as such (regulation 5).
  • A cheque payable to the client or a third party, which should be forwarded or dealt with on the client’s written instructions (regulation 5).
  • Operating the client’s own bank account. Regulation 4 still requires the client’s specific written authority, acknowledged by the bank, and adequate records of the transactions.

Where a firm is authorised by the Financial Conduct Authority and holds investment business clients’ money, the FCA Handbook takes precedence (regulation 2). Members of other accountancy bodies should check their own body’s rules; this page follows ICAEW’s regulations.

When do accountancy firms usually end up holding it?

The most common route is a tax repayment. A taxpayer can nominate someone, often their agent, to receive a Self Assessment repayment on the return, on form R38 or by letter. HMRC’s Self Assessment Manual at SAM110130 notes the taxpayer remains legally entitled to the repayment, HMRC issues it to the nominee at its discretion, and the taxpayer can withdraw the nomination at any time before the repayment is issued. Assignments of repayments received by HMRC on or after 15 March 2023 are legally invalid, although ordinary nominations are unaffected.

Other examples are money received to pay a client’s tax bill, deposits held as stakeholder, and estate money in probate work, which ICAEW requires probate licensed firms to keep separate from other clients’ money.

What are the rules for the client bank account?

  • Identity first. Regulation 8 requires the client’s identity to be verified before holding any money for them.
  • Accountancy purpose only. Regulation 8A limits the account to payments relating to accountancy services the firm is performing, has performed or has been engaged to perform. It is not a banking facility for clients.
  • Bank notice and acknowledgement. Under regulation 9 the firm must notify the bank in writing that the money is clients’ money with no right of set off or combination, that interest is credited to the account, and that the account is described as not belonging to the firm. The bank must acknowledge in writing; for a UK or Irish account, if that is not received within 20 business days, the money must be moved. ICAEW’s 2024 regulatory news names a missing acknowledgement as the most common clients’ money problem it finds.
  • Pay in immediately. Regulation 10 requires clients’ money to be paid into a client bank account or to the client immediately.
  • No office money, except the minimum to open or maintain the account or to restore a shortfall (regulation 11).
  • Large balances. If more than £10,000 for one client is held, or expected to be held, for more than 30 days, it must go into a separate account designated for that client (regulation 13).
  • Interest. Regulation 14 requires an interest bearing account and payment of interest to the client unless the interest would not be material. Explanatory note 5 treats interest as material, for example, on £1,000 or more held for at least eight weeks. Regulation 16 allows a different arrangement agreed in writing, which can be in the engagement letter.
  • Withdrawals. Each withdrawal must be authorised by a principal or by an employee with written delegated authority (regulation 20), and no client’s ledger can go overdrawn (regulation 21). The ICAEW helpsheet adds that funds cannot be paid out until cleared.
  • Return it promptly once there is no longer a reason to hold it (regulation 20A).

When can the firm take its fees from client money?

Regulation 22 allows money to be withdrawn for fees only if:

  1. the client has agreed the precise amount, or it has been finally determined by a court or arbiter;
  2. the fee has been accurately calculated under a formula the client agreed in writing; or
  3. 30 days have passed since the client received a statement of fees and the client has not questioned it.

ICAEW’s helpsheet says that deducting fees from a tax rebate, with the client first learning of the charge when the reduced refund arrives, has traditionally been the most common source of complaints about clients’ money. Writing two cheques on the day the rebate clears, one to the client and one to the firm, breaches the rule unless one of the three conditions is already met.

What reconciliations are required?

Regulation 25 requires two reconciliations at least once every five weeks:

  • the total of all client bank account balances against the total of the credit balances on the client ledgers, with any difference corrected immediately; and
  • at the same time, each client bank account as recorded in the firm’s books against the bank statement, correcting any difference immediately unless it is solely a timing difference.

Regulation 24 sets the records to be kept, including a ledger for each client that reconciles to the bank, and regulation 26 requires the records to be kept for at least six years. Under regulation 27, principals must confirm compliance and ensure an annual review of the firm’s systems, ideally by a principal not involved in handling the money, and significant breaches must be reported to ICAEW. Every principal is responsible for a breach unless they prove it was entirely another principal’s responsibility (regulation 29). The mechanics of matching a ledger to a statement are covered in bank reconciliation.

What about sole practitioners and unclaimed balances?

A firm wholly owned or controlled by one member may hold clients’ money only if it has arrangements with another suitable person to deal with the money if the member dies or becomes incapacitated, and ICAEW must be told (regulation 31). ICAEW’s 2024 news confirms the alternate need not be a chartered accountant.

Where a client cannot be traced, regulation 32 allows the money to be paid to a registered charity once the client has been untraced for five years and reasonable steps to trace them have been taken; for £10,000 or more per client the charity must give an indemnity. The firm remains liable to repay. Otherwise the money stays on deposit (regulation 34). If the client was a company that no longer exists, ICAEW’s helpsheet points to the government’s bona vacantia service.

How might a tax repayment be handled?

Illustration only. A client nominates the firm on her return and HMRC sends a £1,800 repayment to the firm’s client account. Her engagement letter states hourly rates but no fixed fee, and the return work is billed at £450.

  • The money is posted to her client ledger the day it is received.
  • The firm cannot simply deduct £450, because she has not agreed that precise figure and no written formula fixes it.
  • It either pays her £1,800 and invoices £450 separately, or sends her the fee statement and, if she agrees the amount or does not question it within 30 days, transfers £450 and pays her £1,350 promptly.
  • The five weekly reconciliation shows the balance until it is cleared.

What mistakes does ICAEW find most often?

  • Holding clients’ money in the office account.
  • No written bank acknowledgement of the client account terms.
  • No annual compliance review.
  • Large balances not moved to a designated account.
  • Payments through the client account unconnected with any accountancy service.
  • Reconciliations missed or not agreed to individual client ledgers.

Firms setting up client accounts should build these steps into the client onboarding process and their engagement letters, and plan for clients’ money in any practice succession.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.