How Can an Accountant Help New Solicitors Set Up a Compliant Practice

At Towerstone Accountants we provide specialist accountancy services for solicitors and law firms operating under SRA regulation. This article has been written to explain How can an accountant help new solicitors set up a compliant practice 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.

Setting up a new solicitors’ practice is one of the most exciting steps in a legal career. It is also one of the most complex. I regularly speak to newly qualified solicitors and experienced lawyers branching out on their own who underestimate just how much sits behind the scenes of a compliant practice.

This is not just about getting clients through the door. It is about regulation money tax systems reporting and risk. When these foundations are weak the practice becomes stressful fragile and vulnerable to intervention. When they are right the firm has clarity confidence and room to grow.

From my perspective as an accountant who works closely with professional practices the role we play at this stage is critical. In this article I will explain how an accountant helps new solicitors set up a compliant practice from day one and why involving one early often prevents years of problems later.

Why compliance matters from the very beginning

New firms often focus on branding office space and winning work. Compliance feels secondary especially when cash is tight and time is limited. That mindset can be dangerous.

Solicitors operate in one of the most heavily regulated professions in the UK. Financial non compliance is not treated as a minor issue. It can result in fines restrictions or in extreme cases closure of the firm.

Early compliance matters because:

• Systems set up at the start tend to stick

• Regulators expect controls even at small scale

• Errors compound quickly once clients and money flow

• Fixing problems later is far more expensive

An accountant helps build a structure that grows with the practice rather than collapsing under it.

Choosing the right business structure

One of the first decisions a new solicitor faces is how to structure the practice. This decision affects tax liability regulatory obligations and personal risk.

Accountants help assess whether the firm should operate as:

• A sole practitioner

• A partnership

• A limited company

• A limited liability partnership

Each option has different implications for income tax corporation tax National Insurance profit extraction and personal exposure. For example some structures may feel simpler initially but create higher tax costs as profits grow.

This advice must align with guidance from bodies such as the Solicitors Regulation Authority and be compatible with the firm’s authorisation.

Registering with the right bodies

New solicitors often underestimate how many registrations are required before trading begins. An accountant ensures nothing is missed and that registrations are done in the correct order.

This usually includes:

• Registering the business with HM Revenue & Customs

• Setting up PAYE if staff will be employed

• Registering for VAT where required or beneficial

• Confirming accounting reference dates

Mistakes here can lead to penalties or lost reliefs. Getting it right from the start saves time and stress.

Designing a compliant accounting system

A compliant practice needs more than a spreadsheet. Accountants help design an accounting system that supports both regulatory and commercial needs.

This includes:

• Choosing suitable accounting software

• Setting up chart of accounts aligned to legal practice needs

• Separating office account and client account transactions

• Ensuring audit trails are clear and complete

For solicitors the handling of client money is critical. Even unintentional mixing of funds can trigger serious issues. Accountants work alongside compliance officers to ensure systems reflect best practice.

Client accounts and trust accounting

One of the most sensitive areas for any solicitors’ practice is the client account. Errors here are often the root cause of regulatory action.

Accountants support by:

• Designing processes for handling client money

• Setting controls to prevent accidental misuse

• Reconciling client accounts regularly

• Training staff on correct posting procedures

This support reinforces compliance with SRA Accounts Rules and gives principals confidence that client funds are protected.

Cashflow planning for new practices

New practices often struggle not because they lack work but because they lack cash. Delays in billing debt collection and upfront costs all create pressure.

Accountants help new solicitors understand cashflow realistically by:

• Forecasting income and expenditure

• Identifying funding gaps early

• Planning drawings or salaries sustainably

• Timing tax payments correctly

Cashflow forecasting turns uncertainty into visibility. It allows informed decisions rather than reactive ones.

Tax planning from day one

Tax planning is not about avoidance. It is about understanding obligations and using legitimate reliefs efficiently.

Accountants advise new solicitors on:

• Income tax or corporation tax exposure

• VAT treatment of legal services

• Timing of profits and drawings

• Allowable expenses and capital allowances

For example some legal services are VAT exempt while others are not. Misunderstanding this can result in unexpected VAT liabilities that damage cashflow.

VAT registration and compliance

VAT is an area where new firms frequently make costly mistakes. Some register too late. Others register unnecessarily early. Some apply the wrong treatment to fees.

Accountants help with:

• Assessing whether VAT registration is required

• Choosing the right VAT scheme

• Setting up VAT compliant invoicing

• Preparing and reviewing VAT returns

Early VAT planning ensures the firm does not sleepwalk into arrears or penalties.

Payroll and employment compliance

Even small practices often employ staff early whether administrative support paralegals or trainees. Payroll compliance is essential.

An accountant ensures:

• PAYE is set up correctly

• Salaries and pensions are processed accurately

• Real Time Information submissions are on time

• Employment costs are budgeted properly

This protects the firm from HMRC penalties and employment disputes.

Budgeting for regulatory and professional costs

New solicitors are often surprised by the ongoing cost of running a compliant practice. These costs need to be planned not reacted to.

Accountants help budget for:

• Professional indemnity insurance

• Regulatory fees

• Software subscriptions

• Compliance and audit costs

By building these into financial forecasts the firm avoids unpleasant surprises.

Supporting SRA authorisation and inspections

While accountants do not replace legal compliance advisers they play a vital supporting role during authorisation and inspections.

They help by:

• Preparing financial information required by regulators

• Demonstrating financial controls and resilience

• Explaining systems and processes clearly

• Responding to queries around accounts and cashflow

Clear accurate financial records build credibility with regulators and reduce friction during reviews.

Helping solicitors pay themselves properly

New principals often struggle with one question. How much can I safely take out of the business.

Accountants provide clarity by:

• Explaining drawings versus salary

• Ensuring tax is set aside correctly

• Avoiding overdrawn positions

• Balancing personal income with business needs

This prevents one of the most common early failures in new practices which is taking too much out too soon.

Risk management and contingency planning

Compliance is not static. Things go wrong. Staff leave clients dispute bills systems fail.

Accountants support resilience by:

• Stress testing cashflow

• Planning for tax liabilities

• Building reserves

• Advising on insurance needs

This helps new firms survive shocks without breaching regulatory obligations.

Ongoing support as the practice grows

Compliance needs change as the firm grows. What works for a sole practitioner may not work for a ten person practice.

An accountant provides continuity by:

• Scaling systems appropriately

• Reviewing controls regularly

• Advising on expansion or new services

• Preparing for audits or inspections

This long term relationship allows proactive planning rather than constant firefighting.

Common mistakes accountants help new solicitors avoid

Over the years I see the same mistakes repeatedly. Accountants help prevent them early.

These include:

• Mixing personal and business finances

• Ignoring VAT until it becomes urgent

• Poor client account controls

• Underestimating tax liabilities

• Failing to budget for compliance costs

Avoiding these mistakes protects both the firm and the solicitor personally.

When should a new solicitor speak to an accountant

My advice is simple. Before trading begins.

Ideally an accountant is involved:

• At the planning stage

• Before applying for authorisation

• Before opening bank accounts

• Before invoicing the first client

Early advice is far cheaper than late correction.

Final thoughts

Setting up a compliant solicitors’ practice is not about ticking boxes. It is about building a business that is financially sound ethically strong and resilient under scrutiny.

Accountants play a central role in this process. We translate regulation into systems. We turn ambition into structure. We help new solicitors focus on practising law while knowing the foundations are solid.

In my experience the most successful new practices are not those that try to do everything alone. They are the ones that recognise compliance as an investment not a burden and surround themselves with advisers who understand both the rules and the realities of running a firm.

If you are a new solicitor planning to set up on your own my strongest recommendation is to involve an accountant early. It is one of the most important decisions you will make for the future of your practice.

You may also find our guidance on solicitors accounts rules and Do all law firms need an accountant for SRA compliance 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.