After consulting with solicitors in North East London, I have come to the view that we cannot support Ministry of Justice (MoJ) proposals in respect of Interest on Lawyer's client accounts for the reasons set out:
1. The proposed scheme operates as an additional tax on solicitors, introduced through the back door, at a time when small firms in particular are already under significant regulatory and financial pressure.
Such a tax is moreover neither proportionate, nor fair. Nor will it be subject to the usual protocols in respect of review and appeals concerning tax payable.
2. Client accounts are already tightly regulated and are held for the benefit of clients, not firms. Requiring solicitors to calculate interest, separate it out and then pay it over to the MoJ would add another layer of administration and risk.
For small firms, in particular, the amounts of interest involved are likely to be very small, but the time, systems and responsibility needed to deal with this properly will be disproportionate to the amounts remitted.
3. The proposals will require firms to spend more time on accounting and compliance, which means less time will be available for client work. Running costs will be higher. Small firms do not have dedicated finance or compliance teams, so this work would fall directly on fee earners. Those costs will inevitably be passed on to clients through higher fees, which directly undermines the stated aim of improving access to justice.
4. The proposals also pose an increased regulatory risk. Client accounts already carry serious consequences if mistakes are made. Adding a new obligation to collect and remit interest will increase the risk of technical breaches, even where there is no dishonesty or client loss.
5. In practical terms, the proposal would have a disproportionate impact on smaller and mid-sized firms, for whom client account interest is often modest and already carefully managed in accordance with the SRA Accounts Rules. The cost of administering, calculating, accounting for, and remitting client account interest to the MoJ would be significant, and in many cases would exceed the value of the interest itself.
6. If this proposal is taken forward despite these concerns, there should at the very least be a clear and meaningful minimum threshold, so that small firms are not required to spend time and money accounting for very small amounts of interest.
7. More broadly, concern has been expressed about the precedent this proposal sets in relation to client money, which is held on trust and subject to strict regulatory safeguards. Any erosion of that principle risks undermining confidence in the client account regime.
8. As a matter of policy, the proposed programme appears to be a general tax grab that is NOT geared to improve access to justice for those in need of legal aid.
The funds will not be earmarked but instead placed become part of the MoJ’s general funding “to help strengthen the justice system". This is not to legal aid nor is it transparent.
9. Is this amount to be understood as a tax on lawyers, a tax on clients, or a charitable donation? If the former, credits should be made available to remitters. If the latter, charitable donation tax receipts should be made available.
10. These rates proposed are entirely arbitrary. There is no reason to collect amounts from individual client accounts and the administration of such will be complicated, and a violation of the trust under which such funds are held. The proposals do not carve out funds held in escrow, or funds held for short periods (days and sometimes even hours). There is far too much administrative work involved to make such remittances. If remittances are required, these should be collected no more than once yearly and remitted together with other taxation obligations.
In summary, in respect of administrative matters:
- Remittance once yearly together with tax return.
- Create a reasonable meaningful threshold.
- Make the scheme voluntary and give firms a financial recognized benefit for collection and remittance.
- Do not require accounting for interest on client accounts held for less than 30 days.
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Thank you very much to the solicitors and firms of North East London who submitted their views, which formed the basis of my reply to the Minister of Justice and submissions to The Law Society of England and Wales.
The MoJ proposal Interest on Lawyers' Client Accounts Scheme may be found here.
The Law Society response may be found here.
Rosemin Keshvani
Law Society Council Representative
18/03/2026
Email:
