What Happens When a Solicitor Closes Their Practice

Reasons a Solicitor Might Close Their Practice

Solicitors may decide or be required to close a practice for several reasons, including:

• Retirement or career change.

• Financial or viability issues.

• Merging with another law firm.

• SRA intervention or disciplinary action.

• Moving into a non-practising or consultancy role.

Regardless of the reason, the closure must be managed in a way that safeguards clients, staff, and the wider public interest.

Notifying the SRA

Solicitors must notify the Solicitors Regulation Authority as soon as they decide to close a practice. The SRA requires:

• Written notice of closure at least 90 days in advance if possible.

• Confirmation of the intended closure date.

• Details of how client files, client money, and undertakings will be handled.

• Contact information for the responsible manager or compliance officer.

If a firm is closing due to financial distress or insolvency, immediate notification is required so the SRA can assess whether intervention is necessary to protect client funds.

Handling Client Files and Documents

Client files are one of the most sensitive aspects of closing a practice. Solicitors are responsible for ensuring that all client documents are either:

• Returned to the client.

• Transferred to another authorised solicitor with the client’s consent.

• Stored securely for the legally required retention period.

Confidentiality obligations continue after closure, so all records must be kept safe and inaccessible to unauthorised parties. If the firm handled wills, deeds, or trust documents, arrangements must be made for their continued safekeeping and access.

The SRA may require evidence of how client files are stored and how clients were notified about their records.

Dealing with Client Money

If the practice holds client money, the solicitor must close the client account in accordance with the SRA Accounts Rules. This involves:

• Reconciling all client ledgers.

• Returning funds to clients or transferring balances to their new solicitors.

• Paying any residual amounts to the rightful owners.

• Reporting to the SRA once all balances have been cleared.

If any unclaimed funds remain, solicitors must follow SRA guidance for untraceable clients, which may include applying to the SRA for permission to transfer funds to charity.

An accountant familiar with SRA Accounts Rules can help prepare a final reconciliation and ensure compliance before the account is closed.

Professional Indemnity Insurance (PII)

Even after closing, solicitors are required to maintain run-off cover under their Professional Indemnity Insurance policy. Run-off cover protects former clients from potential claims that arise after the practice has ceased trading.

Key points about run-off cover:

• It typically lasts six years from the date of closure.

• It must be arranged with the same insurer that provided cover before closure.

• The cost is usually a percentage of the previous year’s annual premium, often between two and three times the annual rate.

Failing to maintain adequate run-off cover can leave solicitors personally liable for negligence claims.

Informing Clients and Third Parties

Solicitors must inform all current and former clients about the practice closure and explain how their matters will be handled. The notification should include:

• The closure date.

• How and where client files will be stored.

• Details of any transfer of ongoing cases.

• Contact details for future correspondence.

It is also important to inform:

• The firm’s insurers.

• Banks, lenders, and the Law Society.

• HMRC and Companies House (if incorporated).

• Staff, suppliers, and service providers.

Clear communication reduces confusion and ensures continuity for clients whose cases may still be active.

Employee Responsibilities and Redundancies

If the firm employs staff such as legal secretaries, paralegals, or administrative workers, the closure may involve redundancies. Solicitors must comply with UK employment law by:

• Providing notice in writing.

• Paying statutory redundancy and notice pay where applicable.

• Ensuring final payslips, pensions, and holiday entitlements are processed correctly.

An accountant or payroll specialist can manage the financial aspects of redundancy payments, tax deductions, and reporting obligations to HMRC.

SRA Intervention

In some cases, the SRA may decide to intervene in a practice to protect clients, typically when there is evidence of misconduct, insolvency, or unmanaged risks.

When the SRA intervenes:

• The firm’s client files and money are taken over by the SRA.

• Clients are contacted and told how to recover their documents or funds.

• The practice must stop operating immediately.

Solicitors facing possible intervention should seek professional advice quickly to cooperate with the SRA and minimise potential disciplinary consequences.

Closing Company or Partnership Accounts

If the law firm operates as a limited company or LLP, closing the business involves formal steps such as:

• Settling all outstanding liabilities, including taxes and supplier debts.

• Filing a final Corporation Tax or Partnership Tax return with HMRC.

• Deregistering for VAT and PAYE if applicable.

• Closing bank accounts once all transactions are complete.

An accountant can prepare final accounts, submit closure returns, and ensure all HMRC obligations are met before the entity is dissolved or deregistered.

Archiving Records and Retention Periods

The SRA requires certain records to be retained even after a firm closes. This includes:

• Client ledgers and accounting records for at least six years.

• Financial statements and audit reports.

• Personnel files and HR documentation (in line with GDPR and employment laws).

• AML records for at least five years.

Proper archiving ensures compliance and provides evidence if questions arise in the future about the firm’s activities.

Post-Closure Compliance and Reporting

After closure, solicitors must file a final accountant’s report with the SRA if the firm held client money. They must also confirm that all accounts are closed and provide contact details for post-closure correspondence.

If any regulatory issues remain unresolved, the SRA may continue to monitor compliance until the matter is concluded.

Solicitors should also retain access to their SRA MySRA account to manage post-closure updates or correspondence.

How an Accountant Can Help During Practice Closure

An accountant with experience in the legal sector can help manage the financial and regulatory aspects of closing a practice by:

• Preparing final accounts and tax returns.

• Reconciling and closing client and office accounts.

• Advising on redundancy costs and payroll obligations.

• Coordinating with insurers on run-off cover.

• Communicating with the SRA and HMRC on your behalf.

• Ensuring all financial and compliance records are complete and accurate.

Their expertise ensures the closure process runs smoothly and reduces the risk of future regulatory issues.

Summary

When a solicitor closes their practice, it involves more than simply ceasing operations. The SRA requires a structured process that protects clients, secures client money, and ensures ongoing compliance. Proper planning, accurate accounting, and clear communication are essential to closing a law firm responsibly.

Working with an accountant and compliance advisor ensures all regulatory, tax, and financial obligations are met, giving peace of mind during what can be a complex transition.