Residual balances in your client account – don’t panic!

At the end of 2024, the SRA released a statement stating they were intending to conduct a spot check on many legal firms in the UK to determine whether residual balances were being handled correctly and what the current situation was on a nationwide level.

A residual balance is monies left on a matter where the matter has concluded, and there is no proper reason to hold the money. The residual balance could either be the balance of the legal costs, an unpaid disbursement or money that should be refunded to the client.

These spot checks were conducted in early 2025, and we are yet to hear from the SRA the findings of their investigation, however, it has been mentioned that the spot checks could become a more commonplace occurrence in the future.

All legal firms should therefore ensure that they have procedures in place to check on such balances when each matter is completed. Obviously, this should be done anyway, if you are to keep in line with the SRA rules; however, it can quickly escalate into a serious problem when you don’t have certain procedures in place, and you are running a busy law firm.

From conversations with firms since the spot checks were announced, there was a general level of panic due to some firms having taken their eye off the ball regarding this situation. The consequences of incorrect procedures being discovered by the SRA can vary from a warning, through to practicing conditions being imposed, to the closure of a firm; depending on the scale of the problem and the reason as to why it has happened.

If you look at your current matter balance report and realise that this is a problem that affects you, try not to panic. We have extensive experience of assisting firms in how to quickly put procedures in place to:

– Identify residual balances
– Return residual balances where necessary
– Set procedures in place to stop it happening again