Do all law firms need an accountant for SRA compliance?

At Towerstone Accountants we provide specialist accountancy services for solicitors and law firms operating under SRA regulation. This article has been written to explain Do all law firms need an accountant for SRA compliance in clear practical terms so you understand how the rules apply in day to day practice. Our aim is to help you stay compliant protect client money and make informed financial decisions.

As a chartered accountant working closely with UK law firms I am often asked a very direct question. Do we actually need an accountant to stay compliant with the Solicitors Regulation Authority or is it something we can handle internally?

It is a fair question. Solicitors are highly trained professionals used to regulation risk management and detailed rules. Many firms already employ capable finance teams or experienced practice managers. On the surface SRA compliance can look like a set of checklists rather than an ongoing financial discipline.

In reality SRA compliance is deeply tied to accounting systems controls and judgement. While the rules do not explicitly say every law firm must appoint an accountant the practical answer for most firms is yes. Not because the SRA forces it but because the risks of getting it wrong are significant and often underestimated.

In this article I will explain how SRA compliance actually works from a financial perspective when an accountant is legally required and when they are not where firms typically fall short and why most law firms benefit from having an accountant who understands both regulation and the realities of legal practice.

I will draw on current UK guidance and real world experience advising solicitors of all sizes from sole practitioners to multi partner firms.

Understanding SRA compliance in plain English

The Solicitors Regulation Authority regulates solicitors and law firms in England and Wales. Its role is to protect clients uphold public confidence and ensure firms act with integrity and financial responsibility.

From a financial perspective SRA compliance focuses on three main areas:

• Client money and trust
• Financial stability and viability
• Accurate reporting and transparency

The core rules sit within the SRA Accounts Rules and the SRA Standards and Regulations. These rules govern how firms handle client money how records are kept and how firms demonstrate that they are financially sound.

What catches many firms out is that SRA compliance is not just about doing the right thing once a year. It is about having systems processes and controls that operate correctly every single day.

That is where accounting expertise becomes critical.

What the SRA Accounts Rules actually require

The SRA Accounts Rules are principles based rather than prescriptive. This gives firms flexibility but it also increases responsibility.

In simple terms firms must:

• Keep client money separate from office money
• Use client accounts correctly and only for proper purposes
• Maintain accurate up to date accounting records
• Perform regular reconciliations
• Identify and remedy breaches promptly
• Report serious issues to the SRA

There is no fixed template for how this must be done. The SRA expects firms to design systems appropriate to their size structure and risk profile.

This is where many firms struggle. Designing a compliant system requires an understanding of both legal workflows and accounting mechanics.

Is an accountant legally required by the SRA?

Strictly speaking no. The SRA does not mandate that every law firm must appoint an accountant.

However this answer is often misunderstood.

There are specific situations where an accountant becomes effectively unavoidable and many others where the risk of operating without one is high.

Let me break this down clearly.

When an accountant is effectively required

There are circumstances where not having an accountant involved places a firm at serious regulatory risk.

These include:

• Firms holding client money
• Firms with multiple fee earners or departments
• Firms with complex billing structures or disbursements
• Firms experiencing financial pressure or rapid growth
• Firms subject to SRA investigations or monitoring

If you hold client money the SRA expects robust reconciliations segregation of funds and clear audit trails. These are accounting functions even if performed by non accountants.

Errors here can lead to intervention which is one of the most serious actions the SRA can take.

If your firm has multiple partners departments or offices the complexity increases exponentially. Partner drawings profit shares VAT treatment and client account movements all interact.

In these scenarios an accountant with SRA experience is not just helpful but often essential.

The role of the reporting accountant

Historically many firms were required to appoint a reporting accountant to submit an annual report to the SRA. This requirement has changed over time but the concept still matters.

A reporting accountant is an independent accountant who reviews the firm’s compliance with the Accounts Rules and reports breaches.

Even though routine annual reporting has reduced the SRA still expects firms to be able to evidence compliance at any time. If issues arise the SRA can require an accountant’s report with little notice.

Firms without an existing accountant often scramble at this point which increases cost stress and the likelihood of unfavourable findings.

Why internal finance teams are not always enough

Some firms argue that they have an experienced bookkeeper finance manager or practice manager so they do not need an external accountant.

Internal teams are valuable and often excellent but there are limitations.

Internal staff:

• Are not independent
• May not have deep technical tax or regulatory knowledge
• Are not trained to interpret SRA expectations
• Can miss systemic issues due to familiarity

An external accountant brings a different perspective. We are trained to question assumptions test controls and identify risks that internal teams may overlook simply because processes have become routine.

This independence matters greatly if the SRA ever reviews your firm.

Client money is the biggest risk area

In my experience almost every serious SRA issue involves client money in some way.

Common problems include:

• Using client account as a banking facility
• Delayed transfers of costs
• Incomplete or infrequent reconciliations
• Incorrect treatment of residual balances
• Mixing office and client funds

These issues often arise not through dishonesty but through misunderstanding or poor systems.

Client account accounting is not intuitive. It requires:

• A clear chart of accounts
• Proper matter level tracking
• Regular three way reconciliations
• Clear policies understood by all staff

This is specialist accounting work. Expecting solicitors to manage this without accounting input is unrealistic in most firms.

Financial stability and viability requirements

Beyond client money the SRA expects firms to be financially viable.

This includes:

• Paying liabilities as they fall due
• Managing cash flow responsibly
• Avoiding excessive partner drawings
• Maintaining appropriate insurance

Financial difficulty itself is not a breach but failing to recognise and manage it is.

An accountant plays a key role in:

• Cash flow forecasting
• Partner profit planning
• VAT and tax management
• Identifying early warning signs

Firms that wait until there is a crisis often find themselves reporting issues to the SRA under pressure.

Early involvement from an accountant allows problems to be addressed quietly and professionally.

VAT and tax compliance overlap with SRA risk

VAT errors are one of the most common hidden risks for law firms.

Issues include:

• Incorrect VAT treatment of disbursements
• Timing differences between billing and receipt
• Partial exemption complications
• Cash accounting versus standard accounting

HMRC penalties are one problem but unresolved tax issues can also trigger SRA concerns about financial competence.

A specialist accountant ensures that tax compliance aligns with regulatory expectations rather than sitting in isolation.

What happens if you get SRA compliance wrong

The consequences of non compliance can be severe even if there is no dishonesty.

Possible outcomes include:

• Regulatory investigations
• Conditions placed on practising certificates
• Appointment of an intervention agent
• Fines and costs
• Reputational damage

In extreme cases firms can be closed and partners can face personal consequences.

Most of these situations could have been avoided with earlier professional input.

Small firms and sole practitioners

Sole practitioners often believe they are exempt from needing an accountant. In reality they are often at greater risk.

Smaller firms:

• Have fewer internal controls
• Rely heavily on one individual
• Often manage finances alongside fee earning

Mistakes are easier to make and harder to spot.

I regularly work with sole practitioners who are technically excellent solicitors but overwhelmed by financial compliance. An accountant provides structure reassurance and accountability.

What an accountant actually does for SRA compliance

It is not just about producing accounts at year end.

An accountant supporting SRA compliance typically helps with:

• Designing compliant accounting systems
• Setting up client and office accounts correctly
• Training staff on financial procedures
• Performing independent reviews
• Advising on breaches and reporting
• Supporting SRA interactions

This ongoing relationship is far more valuable than reactive support when something goes wrong.

Choosing the right accountant matters

Not all accountants understand legal practices or SRA expectations.

A suitable accountant should:

• Have experience with law firms
• Understand the SRA Accounts Rules
• Be comfortable advising on client money
• Communicate clearly with non accountants
• Take a proactive approach

General compliance accountants may struggle without this sector knowledge.

Do firms ever manage without an accountant?

Yes but it is rare and usually temporary.

Firms that manage without an accountant typically:

• Do not hold client money
• Have very simple structures
• Have strong internal finance expertise
• Accept higher personal risk

Even then many still engage an accountant for periodic reviews rather than ongoing support.

My professional view

In my opinion the question should not be do all law firms need an accountant.

The better question is can your firm afford the risk of operating without one.

SRA compliance is not just about rules. It is about judgement systems and foresight. Accountants are trained to provide exactly that.

For most law firms an accountant is not a regulatory burden but a strategic safeguard.

Final thoughts

The SRA does not explicitly force every law firm to appoint an accountant. However the structure of the rules the complexity of client money and the seriousness of the consequences mean that most firms benefit greatly from professional accounting support.

Whether you are a sole practitioner or a growing multi partner firm the right accountant can help you stay compliant protect your reputation and focus on serving clients rather than worrying about regulatory risk.

In an environment where scrutiny is increasing and tolerance for error is low having expert financial guidance is no longer optional for many firms. It is simply good professional practice.

You may also find our guidance on solicitors accounts rules and How does an accountant help with an SRA audit useful when reviewing related SRA and accounting obligations. For a broader overview of solicitor accounting and compliance topics you can visit our solicitors accounts rules hub which brings all related guidance together.