What Happens When a Solicitor Closes Their 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 What happens when a solicitor closes their 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.

Closing a solicitors’ practice is rarely a simple administrative exercise. In my experience it is one of the most emotionally and practically demanding events a solicitor will face, whether the closure is planned as part of retirement, driven by ill health, caused by financial pressure, or triggered by regulatory issues. Even where the decision feels clear the process that follows can be complex and unforgiving if handled badly.

What makes closure particularly challenging is that obligations do not end when the doors shut. Client interests must still be protected, regulators must be satisfied, records must be retained, and financial affairs must be brought to a proper conclusion. Getting this wrong can create personal liability long after the firm has stopped trading.

In this article I will explain what happens when a solicitor closes their practice, step by step, focusing on real world expectations rather than theory. I will cover regulatory duties, client account issues, records, tax, and the role professional advisers play in making the process as smooth and safe as possible.

Why law firm closures are so tightly regulated

Solicitors occupy a position of trust. Clients often rely on firms to hold money, manage sensitive information, and progress matters that can affect their lives significantly. When a practice closes those responsibilities do not disappear overnight.

Regulators want to ensure that:

• Client money is protected

• Client matters are dealt with appropriately

• Confidential information remains secure

• The public is not exposed to avoidable risk

For this reason practice closure is subject to close oversight by the Solicitors Regulation Authority and must be handled carefully even where the closure is voluntary.

Planned versus unplanned closure

The process and pressure involved depend heavily on whether the closure is planned or unplanned.

A planned closure might involve:

• Retirement

• A decision to wind down a sole practice

• Merger into another firm

• Career change

An unplanned closure might arise from:

• Sudden illness or death

• Financial failure

• Regulatory intervention

• Loss of professional indemnity insurance

Planned closures allow time for preparation. Unplanned closures are far more stressful and often involve urgent intervention to protect clients.

Notifying the regulator

One of the first formal steps in closing a practice is notifying the SRA. This is not optional and should be done as soon as the decision is made.

The regulator will expect information about:

• The reason for closure

• The intended closure date

• How client matters will be dealt with

• How client money will be returned or transferred

• Arrangements for record retention

Early engagement with the regulator usually leads to a smoother process. Silence or delay tends to create suspicion and scrutiny.

Client communication obligations

Clients must be informed that the practice is closing. This communication needs to be clear timely and properly documented.

Firms are expected to tell clients:

• That the practice is closing

• When it will close

• What will happen to their matter

• What will happen to any money held

• How they can obtain their file

Clients should be given reasonable time to decide whether to instruct another firm and where their files should be sent.

Dealing with live client matters

One of the most sensitive parts of closure is handling ongoing work. Matters cannot simply be abandoned.

Options usually include:

• Completing matters where possible before closure

• Transferring matters to another firm with client consent

• Returning files to clients

The overriding principle is acting in the client’s best interests. This may mean prioritising certain matters over others during the wind down period.

Handling client account money

Client account issues are often the area of greatest risk during closure. Every penny of client money must be accounted for and dealt with correctly.

This involves:

• Reconciling client accounts fully

• Identifying balances held for each client

• Returning money to clients promptly

• Transferring funds to new solicitors where instructed

No client money should be moved without proper authority. Errors here can trigger serious regulatory consequences even after closure.

Final client account reconciliation

Before a client account can be closed the firm must ensure:

• All balances are correct

• There are no unidentified sums

• All transfers are documented

Accountants are often heavily involved at this stage because the regulator may require evidence that the account was properly reconciled at the point of closure.

Office account and outstanding liabilities

Closing the practice also means settling the firm’s own financial affairs.

This includes:

• Paying staff and final payroll

• Settling supplier invoices

• Clearing tax liabilities

• Closing bank accounts

Failure to deal with these properly can result in personal liability depending on the firm’s structure.

Staff considerations

If the practice employs staff there are employment law obligations to consider.

These include:

• Proper notice or redundancy procedures

• Final salary payments

• Accrued holiday pay

• Pension obligations

Even small firms can face claims if these steps are mishandled.

Professional indemnity insurance run off cover

One of the most critical steps in closing a solicitors’ practice is arranging professional indemnity insurance run off cover.

Run off cover protects against claims made after the practice has closed for work carried out before closure. This is not optional and is a regulatory requirement.

Key points include:

• Run off cover must usually be in place for six years

• The cost can be significant

• Failure to arrange cover exposes the solicitor personally

This is an area that should be planned well in advance where possible.

Storage and retention of client files

Even after closure client files and records must be retained securely.

Firms must consider:

• How long records must be kept

• Where files will be stored

• Who will have access

• How confidentiality will be preserved

Client account records typically must be retained for at least six years, but some files may need to be kept longer depending on the nature of the work.

Access to files after closure

Clients may request access to their files years after a practice has closed. Firms must ensure there is a clear process for responding.

This often involves:

• Appointing a nominated contact

• Keeping records of file locations

• Ensuring data protection compliance

Losing files or being unable to respond can cause serious issues long after closure.

Data protection and confidentiality

Closing a practice does not end data protection obligations. Client data must remain secure and confidential.

This includes:

• Secure storage of electronic records

• Controlled access to physical files

• Safe disposal of records when permitted

Breaches after closure can still result in regulatory or legal action.

Tax implications of closing a practice

From a tax perspective closure is a significant event. Final accounts and tax returns must be prepared accurately.

This may involve:

• Final income tax or corporation tax returns

• VAT deregistration and final VAT returns

• Capital gains tax on disposal of assets or goodwill

• PAYE final submissions

Engagement with HM Revenue & Customs is usually required to bring affairs to a clean close.

VAT deregistration and final VAT return

If the practice is VAT registered it must deregister when it stops trading.

This involves:

• Submitting a final VAT return

• Accounting for VAT on closing stock or assets if required

• Repaying or reclaiming any VAT due

Mistakes here can lead to assessments after closure.

Treatment of work in progress and debts

Work in progress and outstanding fees need careful handling.

Options include:

• Completing billing before closure

• Writing off irrecoverable amounts

• Assigning debts to another firm

Tax treatment depends on how these items are dealt with and whether income has already been recognised.

Capital assets and goodwill

Closing a practice may involve selling or disposing of assets such as:

• Office equipment

• IT systems

• Client lists or goodwill

These disposals can have capital gains tax implications which need to be considered carefully.

The role of an accountant during closure

Accountants play a central role in practice closure. This is not just about preparing final accounts.

Accountants typically support by:

• Reconciling client and office accounts

• Preparing final financial statements

• Advising on tax liabilities

• Supporting regulatory queries

• Coordinating with insurers and banks

This involvement often reduces stress and prevents costly mistakes.

Common mistakes when closing a practice

Over the years I have seen recurring issues that cause unnecessary problems.

Common mistakes include:

• Delaying notification to the regulator

• Poor client communication

• Incomplete client account reconciliations

• Underestimating run off insurance costs

• Losing access to records after closure

Most of these issues arise from rushing or trying to handle everything alone.

What happens if closure is mishandled

If a practice is closed improperly the consequences can be severe.

These may include:

• Regulatory investigation

• Personal liability for client losses

• Disciplinary action

• Difficulty obtaining future authorisation or employment

Closure does not shield a solicitor from responsibility for past conduct.

Planning for closure early

Even if closure feels distant planning early makes an enormous difference.

Good planning includes:

• Keeping records well organised

• Maintaining clean client account reconciliations

• Understanding insurance obligations

• Having a clear exit plan

Firms that plan early generally experience far less stress when the time comes.

Final thoughts

So what happens when a solicitor closes their practice. In short responsibility continues long after trading stops. Clients regulators insurers and tax authorities all expect matters to be concluded properly and transparently.

From my experience the smoothest closures are those that are planned supported by professional advice and handled with honesty and care. Closing a practice does not have to be a crisis but it does require respect for the obligations that come with the profession.

If you are considering closing your practice now or in the future my strongest advice is not to leave it until the last moment. Engage advisers early, communicate clearly, and treat the process with the seriousness it deserves. Done properly closure can be the final professional act that protects both your clients and your reputation.

You may also find our guidance on What are the reporting deadlines for solicitor firms 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.