When must interest be paid?

The following section has been extracted from the Solicitors Accounts Rules (SAR) about Interest.

PART C - INTEREST

Rule 24 - When interest must be paid

1. When a solicitor holds money in a separate designated client account for a client, or for a person funding all or part of the solicitor's fees, the solicitor must account to the client or that person for all interest earned on the account.

2. When a solicitor holds money in a general client account for a client, or for a person funding all or part of the solicitor's fees (or if money should have been held for a client or such other person in a client account but was not), the solicitor must account to the client or that person for a sum in lieu of interest calculated in accordance with rule 25.

3. A solicitor is not required to pay a sum in lieu of interest under paragraph (2) above:

(a) if the amount calculated is £20 or less;

(b) (i) if the solicitor holds a sum of money not exceeding the amount shown in the left hand column below for a time not exceeding the period indicated in the right hand column:

1. • Amount Time

   • £1,000 8 weeks

   • £2,000 4 weeks

   • £10,000 2 weeks

   • £20,000 1 week

(ii) if the solicitor holds a sum of money exceeding £20,000 for one week or less, unless it is fair and reasonable to account for a sum in lieu of interest having regard to all the circumstances;

(c) on money held for the payment of counsel's fees, once counsel has requested a delay in settlement;

(d) on money held for the Legal Services Commission;

(e) on an advance from the solicitor under rule 15(2)(b) to fund a payment on behalf of the client in excess of funds held for that client; or

(f) if there is an agreement to contract out of the provisions of this rule under rule 27.

4. If sums of money are held intermittently during the course of acting, and the sum in lieu of interest calculated under rule 25 for any period is £20 or less, a sum in lieu of interest should still be paid if it is fair and reasonable in the circumstances to aggregate the sums in respect of the individual periods.

5. If money is held for a continuous period, and for part of that period it is held in a separate designated client account, the sum in lieu of interest for the rest of the period when the money was held in a general client account may as a result be £20 or less. A sum in lieu of interest should, however, be paid if it is fair and reasonable in the circumstances to do so.

6. If a solicitor:

(a) holds money for a client (or person funding all or part of the solicitor's fees) in an account opened on the instructions of the client (or that person) under rule 16(1)(a), the solicitor must account to the client (or that person) for all interest earned on the account.

(b) has failed to comply with instructions to open an account under rule 16(1)(a), the solicitor must account to the client (or the person funding all or part of the solicitor's fees) for a sum in lieu of any net loss of interest suffered by the client (or that person) as a result.

7. This rule does not apply to controlled trust money.

Notes

Requirement to pay interest

(i) The whole of the interest earned on a separate designated client account must be credited to the account. However, the obligation to pay a sum in lieu of interest for amounts held in a general client account is subject to the de minimis provisions in rule 24(3)(a) and (b). Section 33(3) of the Solicitors Act 1974 permits solicitors to retain any interest earned on client money held in a general client account over and above that which they have to pay under these rules. (See also note (viii) to rule 15 on aggregation of accounts.)

(ii) There is no requirement to pay a sum in lieu of interest on money held on instructions under rule 16(1)(a) in a manner which attracts no interest.

(iii) Accounts opened in the client's name under rule 16(1)(b) (whether operated by the solicitor or not) are not subject to rule 24, as the money is not held by the solicitor. All interest earned belongs to the client. The same applies to any account in the client's own name operated by the solicitor as signatory under rule 11.

(iv) Money subject to a trust which is not a controlled trust is client money (see rule 13, note (vii)), and rule 24 therefore applies to it.

De minimis provisions (rule 24(3)(a) and (b))

(v) The sum in lieu of interest is calculated over the whole period for which money is held (see rule 25(2)); if this sum is £20 or less, the solicitor need not account to the client. If sums of money are held in relation to separate matters for the same client, it is normally appropriate to treat the money relating to the different matters separately, so that, if any of the sums calculated is £20 or less, no sum in lieu of interest is payable. There will, however, be cases when the matters are so closely related that they ought to be considered together - for example, when a solicitor is acting for a client in connection with numerous debt collection matters.

Administrative charges

(vi) It is not improper to charge a reasonable fee for the handling of client money when the service provided is out of the ordinary.

Unpresented cheques

(vii) A client may fail to present a cheque to his or her bank for payment. Whether or not it is reasonable to recalculate the amount due will depend on all the circumstances of the case. A reasonable charge may be made for any extra work carried out if the solicitor is legally entitled to make such a charge. Liquidators, trustees in bankruptcy, Court of Protection receivers and trustees of occupational pension schemes

(viii) Under rule 9, Part C of the rules does not normally apply to solicitors who are liquidators, etc. Solicitors must comply with the appropriate statutory rules and regulations, and rules 9(3) and (4) as appropriate.

Joint accounts

(ix) Under rule 10, Part C of the rules does not apply to joint accounts. If a solicitor holds money jointly with a client, interest earned on the account will be for the benefit of the client unless otherwise agreed. If money is held jointly with another solicitors' practice, the allocation of interest earned will depend on the agreement reached.

Requirements for controlled trust money (rule 24(7))

(x) Part C does not apply to controlled trust money. Under the general law, trustees of a controlled trust must account for all interest earned. For the treatment of interest on controlled trust money in a general client account, see rule 13, note (xi)(b), rule 15(2)(d) and note (vi) to rule 15. (See also note (viii) to rule 15 on aggregation of accounts.)