We keep the business side of a law firm's books: its own fees, disbursement recovery, payroll, VAT, management accounts and tax. Client money and the SRA report stay where they belong.
Book a 30-minute conversation →Client money is policed. Rule 8.3 wants the bank balance reconciled to the cash book and the client ledger total at least every five weeks, signed off by the COFA. Rule 12.1 wants an accountant's report within six months of the period end, unless the firm sits inside the rule 12.2 exemption for small client-money balances.
The office account carries everything else: fee income, disbursement recovery, staff, premises, indemnity, VAT and tax. Nobody is appointed to read it monthly. It is looked at once a year by someone whose engagement was really about the report, long after the decisions it should have informed.
A dispute opened in October and billed the following June straddles the year end. Book it when the invoice goes and the first year is understated, the second flattered. The revised FRS 102, applying to periods beginning on or after 1 January 2026, puts this on a five-step footing: work in progress becomes a contract asset where earned but unbilled, a contract liability where money on account covers work not yet done. The judgement follows the engagement terms, not the billing date.
A true disbursement is a third-party cost paid as the client's agent and passed on at cost, meeting the eight conditions at paragraph 25.1 of VAT Notice 700. Miss them and it is a recharge: part of the firm's own supply, carrying output VAT. In Brabners LLP v HMRC [2017] UKFTT 666 (TC) a conveyancer was held to be no mere conduit for search results, so electronic searches formed part of the firm's own service, output VAT due though none was charged inbound. One disbursement code for everything is an exposure measured in turnover nobody billed.
Conditional and damages-based work earns nothing unless the matter lands, which tempts firms into recognising nothing until the cheque clears. Under the revised standard, revenue can come in before conclusion where recovery is highly probable and reliably measurable — earlier, for some, than current practice. That pulls profit into a year nobody planned for, tax attached.
Conveyancing is sold at a quoted figure and delivered at an unknown cost. The chain that collapses twice, the lender panel admin, the unrecoverable search, the file reopened months later for an enquiry — none of it is on the quote. Cost the matter type rather than the firm and you learn which work subsidises which, often probate quietly carrying a conveyancing department that looks busy.
Office account cash is not the firm's money. It holds VAT collected and not yet paid, costs billed on account but not earned, the float for disbursements about to be incurred, the tax reserve on profits already made. Strip those out and the distributable figure is much smaller than the balance. In a company the same confusion appears as a director's loan account drifting overdrawn, with a section 455 charge behind it.
Compulsory cover under the SRA Indemnity Insurance Rules is at least £3 million for any one claim for a recognised or licensed body and £2 million otherwise, on minimum terms. The premium moves with claims history and work mix, conveyancing volume especially. Posted as one autumn lump, it makes one month look catastrophic and eleven better than they are.
Lock-up is work in progress days plus debtor days — the stretch between doing the work and holding the cash. Published sector commentary makes the arithmetic plain: a firm billing £3 million a year at 130 lock-up days has around £1.1 million tied up, and taking 25 days out releases over £200,000 without a single new instruction. The cheapest money in a law firm, and the least measured. Served across Northamptonshire, Cambridgeshire and the surrounding counties.
On your existing Xero or Sage. Fee income split from disbursement recovery; indemnity and practising certificates accrued across the year.
Each third-party cost tested against the Notice 700 conditions before the return goes. Genuinely arguable treatments flagged as such.
Work in progress days and debtor days separately, by matter type where your case management system allows, oldest unbilled matters named.
Conveyancing, probate, family, employment, commercial — what each earns after the fee earner, supervision and premises.
Profit after VAT, tax reserve and unearned costs on account. One number to draw against.
For incorporated firms inside the small and micro-entity thresholds, from books already kept. From the £195 + VAT tier.
Peter Edwards ACMA CGMA. A law firm's office ledger is familiar ground because its problems are industrial problems in a wig: unbilled work valued across a period end, a third-party cost that may or may not be your own supply, a cash balance flattering the profit.
Twenty-five years in finance — Head of Finance at a pharmaceutical wholesaler growing from £3m to £10m, a £13m publishing group, a £15m software company, and Responsible Financial Officer at a town council. No claim to a legal client base: this is a new practice, and the offer is competence, not a logo wall.
Essentials £95 + VAT a month. Essentials + Books £195 + VAT, with year end and the CT600. Managed £395 + VAT, with management accounts. Finance Director £1,250 + VAT. Overdue years £450 + VAT each. Full price list.
Not the bank balance — the days between doing the work and being paid, split between unbilled and uncollected. If that is a shrug, the Quick Books Check is seven questions.
Run the free Quick Books Check → Or book a 30-minute conversation