How can an accountant help solicitors transition to digital accounting?

The legal industry has traditionally been cautious in adopting new technology, especially in areas involving client money and compliance. However, with HMRC’s Making Tax Digital initiative and the increasing need for real-time financial insight, digital accounting has become essential for modern law firms. Accountants are central to this transformation, helping solicitors adopt digital tools without disrupting day-to-day operations.

Understanding digital accounting for solicitors

Digital accounting involves using software platforms to record, track, and report all financial transactions electronically. For solicitors, this means replacing manual ledgers and paper-based reconciliations with cloud-based accounting systems that integrate directly with legal case management software and online banking.

Popular digital accounting solutions for law firms include Xero, QuickBooks, and Sage, often paired with legal-specific add-ons like LEAP or Clio. These systems can automate much of the financial administration that used to be time consuming and prone to error.

However, transitioning to digital accounting is not simply about purchasing software. It requires a strategic approach, careful setup, and training to ensure compliance with both SRA and HMRC standards.

How accountants support the digital transition

Accountants play an active role at every stage of a solicitor’s move to digital accounting. Their expertise ensures that the system is not only efficient but also meets regulatory and reporting requirements.

1. Assessing the firm’s current systems

Before introducing digital tools, accountants assess the firm’s existing accounting processes. They identify inefficiencies, compliance gaps, and areas where automation could save time.

This initial review helps determine whether the firm needs a complete system overhaul or just an upgrade to integrate digital functions with existing tools.

2. Recommending suitable software

Every law firm operates differently, and not all accounting platforms are suitable for managing client money under SRA rules. Accountants evaluate different software options based on the firm’s size, case volume, and practice areas.

They ensure the chosen software can:

• Maintain separate client and office ledgers.

• Support three-way reconciliations.

• Handle VAT and MTD submissions.

• Integrate with case management systems.

• Produce compliant financial reports for the COFA and partners.

Selecting the right platform from the outset prevents costly migration errors and future compliance issues.

3. Setting up compliant structures

Once software is chosen, accountants configure it to meet SRA and HMRC requirements. This includes setting up:

• Client and office accounts in accordance with the SRA Accounts Rules.

• Chart of accounts specific to legal practices.

• Bank feeds for automatic transaction import.

• VAT codes and MTD integration for digital submissions.

Proper setup ensures the system produces accurate reports and audit trails for both client money and firm finances.

4. Managing data migration

Migrating data from old spreadsheets or legacy systems can be one of the most complex parts of going digital. Accountants oversee the process to ensure that all balances, invoices, and historical records are transferred correctly and reconciled.

They verify that:

• Client ledgers match closing balances from the old system.

• Historical VAT data is carried forward accurately.

• Transaction dates and references remain consistent.

This prevents discrepancies and ensures a smooth handover without disrupting ongoing client work.

5. Training solicitors and support staff

Adopting digital accounting successfully depends on user confidence. Accountants provide tailored training to solicitors, partners, and administrative staff, showing them how to:

• Enter transactions correctly.

• Run reports and reconcile accounts.

• Handle client-to-office transfers.

• Submit VAT returns digitally.

Training reduces errors, increases efficiency, and helps everyone understand how digital tools support compliance.

6. Ensuring Making Tax Digital compliance

Accountants ensure that solicitors’ new systems meet HMRC’s Making Tax Digital requirements. This includes:

• Submitting VAT returns directly from digital software.

• Maintaining digital records of all transactions.

• Linking all financial data electronically without manual re-entry.

By implementing these processes, accountants help law firms avoid penalties and simplify their quarterly reporting obligations.

7. Strengthening SRA compliance

Digital accounting also supports the SRA’s demand for transparency and proper handling of client money. Accountants check that client accounts are reconciled at least every five weeks, interest is calculated correctly, and records are complete.

They set up automated reconciliations and reporting tools that make it easier for the firm’s COFA to monitor compliance and identify potential breaches early.

8. Providing ongoing support and reviews

Once the digital system is live, accountants continue to provide support through regular reviews, troubleshooting, and updates. They monitor data accuracy, assess whether processes are being followed correctly, and recommend improvements as regulations evolve.

For example, an accountant might identify opportunities to automate repetitive tasks like bill generation or expense tracking, freeing up more time for fee earning.

Benefits of working with an accountant during digital transformation

Transitioning to digital accounting brings significant benefits when guided by an experienced accountant:

• Reduced compliance risk: Proper setup ensures compliance with both SRA and MTD.

• Improved accuracy: Automation reduces human error in reconciliations and VAT returns.

• Time savings: Digital processes replace manual bookkeeping.

• Better reporting: Real-time data provides insight into firm performance and cash flow.

• Scalability: The system grows with the firm as it adds new clients and services.

These advantages not only streamline daily operations but also strengthen the firm’s long-term financial stability.

Example in practice

A small litigation firm using manual spreadsheets and paper ledgers struggled with monthly reconciliations and VAT submissions. An accountant reviewed their setup and introduced Xero integrated with LEAP. The accountant migrated client balances, trained staff, and configured the software for three-way reconciliations.

The result was immediate: reconciliations that once took a week were completed in a day, VAT returns were filed directly to HMRC, and the COFA had real-time access to financial data.

Why digital accounting is becoming essential for solicitors

The legal industry is increasingly expected to operate with transparency and efficiency. Clients demand accurate billing and timely reporting, while regulators require digital records and clear audit trails.

With HMRC expanding Making Tax Digital and the SRA tightening financial controls, digital accounting is no longer optional. It is a compliance necessity and a commercial advantage.

Conclusion

Accountants play an essential role in helping solicitors transition to digital accounting. They manage every stage of the process from choosing compliant software and migrating data to training staff and maintaining SRA and HMRC compliance.

By leveraging the expertise of accountants, solicitors can adopt digital accounting confidently, reduce risk, and create a more efficient, transparent, and future-ready practice.