Response to the Consultation on the proposed Interest on Lawyers’ Client Accounts Scheme
This is the response of the Dorset Law Society (Society) to the Ministry of Justice’s consultation with the proposed Interest on Lawyers’ Client Accounts Scheme, updated on 12 February 2026.
The Society represents members of the regulated legal profession, including Solicitors, Chartered Legal Executives and trainee Solicitors who work or reside in Dorset. We have in excess of 200 members. Some of the firms in which members work have offices across the South West of England region.
Replies to questions
1. Do you have any views on the proposed scope of the scheme?
The attempt to draw parallels with schemes adopted in foreign jurisdictions are not acceptable. The ways in which funds are used in those systems are not comparable with the proposed scheme. The legal profession and their clients should not be subject to a distinct tax on interest or to have part of its income confiscated.
The justice system should be paid for by all members of society. It ought not to be a unique tax burden on legal practitioners and those practitioners’ clients. Foreign schemes that deal with legal aid, for example, are quite different from the proposed scheme. Mr Lammy outlines in his foreword to the consultation the intention of the confiscation of funds for general government spending.
Whilst it is clear that the government is scrabbling about looking for sources of funds, the proposed scheme is not acceptable, it has been common ground for many years that all taxation must be equitable and not impose a burden on a particular group. This is not a tax on a commodity. The proposal is to increase the tax on income earnt by legal practitioners only.
Inevitably, the scheme will be expensive for practitioners to administer and the tax take by the Treasury will undoubtedly be much less than the proposers of this scheme imagine. The interest rate received on client accounts fluctuates. For many years, when the interest rates were low, member firms would have spent more on banking, debit and credit card and administration costs than they earnt in interest.
The income from the scheme will vary significantly as interest rates change. This does not seem like a sensible way to raise revenue, as you cannot predict the amount that will be raised.
A percentage of interest earned is already paid to the Treasury via income tax where these sums help business owners make a profit. Removing the interest from member firms will reduce the profitability of the businesses and therefore reduce the tax collected – decreasing the presumed level of income by implementing this scheme.
The consultation says that “We [HM Treasury] believe legal service regulators are better placed to make client interest rules for firms that account for wider considerations such as ethical obligations and client protections.” We agree that the regulators established under the Legal Services Act 2006 should be responsible for the regulation of client account interest, subject always to support of the rule of law and supporting access to justice.
There is a current vogue for ignoring the rule of law. Confiscating funds and introducing inequitable taxes may be the way that this fashion is adopted by the current government.
2. Aside from reserved legal activities, is there other work undertaken by legal service providers that includes holding client money? Should this be in or out of scope of the scheme?
There should be no scheme such as that proposed.
3. Are there other account types used for holding client money that should be in scope of the scheme?
There should be no scheme such as that proposed.
Rule 7 of the Solicitors Accounts Rule 2019 provides:
7.1 You account to clients or third parties for a fair sum of interest on any client money held by you on their behalf.
7.2 You may by a written agreement come to a different arrangement with the client or the third party for whom the money is held as to the payment of interest, but you must provide sufficient information to enable them to give informed consent.
4. Are there any types of individual account used for holding client money that should not be included in scope of an ILCA scheme? And why?
There should be no scheme such as that proposed.
5. We propose that the scheme retains a higher proportion of interest generated on pooled client accounts (75–100 percent), and a lower rate of 50 percent of interest on individual client accounts. Do you have any comments on these rates?
There should be no scheme such as that proposed.
Currently, member firms must account to clients and third parties for a ‘fair sum’ of interest on any client money held. Your suggestion of retaining 75-100% of interest deprives clients and third parties of receiving a fair sum.
Practitioners need to pay credit and debit card charges and bank account charges. Receiving some interest helps pay for these and the administration required to process payments and comply with their SRA’s regulatory accounting obligations and tax legislation.
The SRA regulations oblige member firms to keep client money safe and immediately available. Member firms incur costs complying with their obligation of keeping client money safe. If interest was not retained by them to defray the overhead, an additional cost would be passed onto clients.
6. Do you foresee any difficulties with keeping in place the existing rules on client interest, for the interest not secured by the scheme?
There should be no scheme such as that proposed. The scheme would increase costs and deprive firms of income. Inevitably, charging rates will have to increase because of these effects and this will adversely affect access to justice by the most vulnerable in society.
We do not foresee any difficulties with keeping the existing rules in place. The SRA could clarify what ‘a fair sum’ means, so clients always receive the same amount of interest, no matter which the firm they instruct.
Those of the Society’s member firms consulted use their chosen bank’s standard instant access account rate to calculate the sum the clients should receive. This is what the clients could reasonably achieve themselves. Funds cannot be invested in alternative higher interest rate accounts by member firms or clients because the sum has to be immediately available.
7. For legal work undertaken on your behalf as a client, have you received (or are you expecting to receive) interest on your funds?
Regulated Law Firms must pay a fair sum of interest to the client. Therefore, where substantial funds attract interest, clients are likely to receive some or all interest.
8. If yes to the previous question, how much interest have you received/are expecting to receive?
Of the Society’s member firms consulted, interest is paid to clients at the interest rate given to customers by the firm’s chosen bank’s standard instant access account, subject to a de minimis retention.
9. Are there any impacts of the proposed scheme on clients that we have not considered?
Yes. The interest currently paid to clients will be confiscated for purposes for which they have already contributed through direct taxation. The double tax falls on both legal services providers and clients alike in these circumstances.
The cost of legal work will increase, reducing access to justice – particularly for those on low incomes.
Consumers are already taxed on receiving legal services via VAT. Adding a stealth tax by removing the interest, only prejudices those requiring legal advice.
Some firms are likely to go out of business if the interest is removed, which will reduce access to justice.
If firms close, many other businesses that rely on the legal sector, from IT software providers to cleaners will see a reduction in income and potentially have to lay off staff or close down themselves.
Many of the Society’s member firms have used the interest to help them update legacy IT and telephony infostructures, promote law, increase their workforce etc. This all provides clients with a better service and improves access to justice. Removing the interest will mean clients will have to pay more to receive such a service.
If firms cannot retain interest, but oblige them to return interest to clients, the cost of doing so will outweigh the sums the clients receive. Therefore, either member firms will lose further revenue, or the clients will be charged more to undertake this process.
Most of the interest accruing to the Society’s member firms’ client accounts relates to sums held for short periods, typically whilst property and business transfers complete or sums are recovered for beneficiaries of an estate. We appreciate this will differ for large commercial firms. So far as the Society’s member firms are concerned there are key areas of law that the government seeks to further complicate.
a. The UK housing market is central to the economy, acting as a key driver in consumer confidence, financial stability and employment. The number of businesses which benefit from a house purchase is wide-reaching: banks, lawyers, builders, electricians, plumbers, DIY, paint and soft furnishing shops, whitegoods manufacturers and sellers, etc. Removing the interest from law firms and clients will lead to the cost of a transaction increasing and inevitably this will affect the property market and/or after-purchase spend.
b. Estates are already subject to Inheritance Tax, which is generally seen to be an unwelcomed and controversial tax. Taking further money from that estate and driving the cost of the legal serves up will be very unpalatable for most.
10. For legal service providers: how easy or difficult do you find it currently to open pooled or individual client accounts?
The member firms the Society consulted did not have any difficulty opening pooled client accounts. Banks have invested in the legal sector, in the knowledge that the accounts need to be extremely safe, that billions of pounds move through them and therefore most have a dedicated and experienced support team. Removing the interest may make this much harder to open pooled accounts, damaging the sector and might cause the banks to reduce the support and focus on these accounts, causing issues, delays etc.
11. For client account providers (including Third Party Managed Account providers): are there any benefits or challenges foreseen with introducing banking products with the specified criteria proposed?
The Society is not a client account provider.
We do note that there is a considerable appetite amongst civil servants to introduce business to Third Party Managed Account providers. This is a cause of considerable concern. We have seen the way in which the public private sector schemes heralded as significant benefits to the economy have shown themselves to be costly disasters.
Once again, government ministers and civil servants are attracted by big tech for reasons other than the good of the services being provided. In this case, services provided by the private sector which are in no need of the intervention of costly ‘solutions’ to problems that do not exist.
12. For client account providers: Would you be able to offer client accounts that could automatically transfer the appropriate amount of interest to the scheme? How would they work?
The Society is not a client account provider.
13. By what process should a “comparable rate” of interest on client accounts be determined?
There should be no scheme such as that proposed.
A “Comparable Rate” approach to account interest is yet another example of why this scheme should not be implemented. Complexity and regulation may have their attractions to the authors of this consultation. In reality they will cause firms to face costs and potential compliance issues. More things to be audited and more work for the accounts staff in firms.
14. We propose that interest is credited to client accounts, and collected by the scheme, periodically (such as monthly or quarterly). What should that frequency be?
There should be no scheme such as that proposed.
If such a scheme was introduced then this appears to be a question for the banks, as they will presumably be sending out the sums. The law firm should not have any involvement, as any involvement will incur unnecessary costs.
15. Are there other account criteria for the accounts that would be recommended to make the scheme work as intended?
There should be no scheme such as that proposed.
16. Do you foresee any practical difficulties with the proposed process for legal service providers?
There should be no scheme such as that proposed.
If the amount of accrued interest is incorrectly calculated, and an excessive sum is taken by/paid to the Treasury, the law firm will commit a major breach of the Solicitors Account Rules. This is extremely serious, and although compensation must be awarded, this could be insufficient. Attempts to force the profession to outsource client money management to third parties by ministers and civil servants beguiled by big tech will lead to increased costs, complication and frustration in practice.
17. Do you have any suggestions for changes that could improve how the model works for legal service providers?
There should be no scheme such as that proposed. The current system does not need to be changed.
18. Do you have any other thoughts on the intended scheme process for legal service providers?
There should be no scheme such as that proposed. The scheme is prejudicial, is ill thought out, risks firms closing and/or jobs being lost. It risks damaging a multibillion pound industry and thousands of other businesses and employees that feed off it: all of whom pay tax.
19. At your firm, how much interest is typically generated on a single client’s funds including:
a. On one client’s funds in a pooled client account; and
b. On one client’s funds in an individual client account.
We are not a law firm. However, the Society’s members report that many of them generate substantial amounts of interest which are used to defray overheads.
20. What proportion of your firm’s turnover is client account interest?
The Society is not a law firm.
21. What does your firm currently do with client account interest?
The Society is not a law firm.
Firms are obliged to account to clients for interest over a nominal sum, in any event. Rule 7 of the Solicitors Accounts Rule 2019 already attends to this.
Those of the Society’s member firms consulted have specific arrangements with clients concerning the payment of interest in the terms of their retainer.
22. How would the scheme, as proposed, affect your firm?
The Society is not a law firm.
The Society’s member firms would be considerably adversely affected by the proposed scheme by increased overheads and by overheads not being defrayed out of interest received. We understand some firms may have to cease trading.
23. What indirect/administrative costs may the scheme place on your firm and how can we limit them?
The Society is not a law firm.
It is anticipated that there will be substantial additional overhead costs and accounting expenses incurred in administration of such a scheme. To stop firms being adversely affected by the additional cost and removal of an income will increase the cost of legal services.
24. Does your firm conduct legal aid work?
The Society is not a law firm.
The Society has only one member firm that conducts criminal legal aid work. This reflects that the cuts in the legal aid scheme have diminished the number of firms offering this service.
Few member firms conduct civil legal aid work.
A civil society is judged by how the least well off and the disabled are catered for. Legal Aid is no longer available from most firms as the rates are so low. There is little or no choice for people who need to be helped by society. The responsibility for assisting people should be borne by society as a whole and not by the people who happen to provide legal services and their clients.
It is a matter of concern that the government considers it proper to propose the scheme that would impose a tax on Solicitors and their clients. Moreover, that the proceeds of this tax would disappear into the general funds.
This proposed tax on lawyers and their clients is contrary to the principle that taxation should be equitable.
25. If yes to the previous question:
a. What proportion of your firm’s turnover is derived from legal aid work?
b. Would the proposed scheme impact your provision of legal aid services, and to what extent?
Not applicable.
26. Do you envisage circumstances in which you would need the scheme administrator to assist you?
There should be no scheme such as that proposed.
There is no need to create a new agency in the bureaucracy as a costly scheme administrator and cabinet, civil servants’ salaries and pensions, premises, expensive IT and other overheads. Inevitably, this scheme will cost millions, which will be taken from the interest that is confiscated by this unfair tax. The winners will be big tech and the civil service. The losers will be lawyers and their clients.
27. For client account providers: what are your views on the two proposed models for managing scheme interest: multiple administrator accounts across institutions versus a single central account?
The Society is not a client account provider.
28. We propose that the Ministry of Justice initially administers the scheme. Do you think there is a more suitable organisation to take on this role in future, and why?
There should be no scheme such as that proposed.
No doubt the scheme will be administered using an expensive outsourced big tech solution. The influence of big tech on the civil service and government ministers causes concern about why these proposals are being made, aside from the unfairness of them.
29. Do you have any other comments on the proposed roles of the scheme administrator?
There should be no scheme such as that proposed.
The government ought to be unbundling bureaucracy and reducing the costs of administration of the justice system and putting money into the justice system itself after many years of neglect.
30. What reporting activity do you already undertake on client accounts and client account interest?
The Society is not a law firm.
The Society’s member firms that hold or deal with client money are obliged to be audited and to comply with the SRA Accounts Rules 2019. These are comprehensive and have been designed over many years to protect clients.
31. How might we ensure that an approach to monitoring and enforcement is proportional and effective?
The Society is not a law firm.
The Society’s member firms would be adversely impacted by additional compliance requirements, particularly from yet another body.
32. What do you consider to be the proposed ILCA scheme’s equalities impacts on individuals with protected characteristics (if any)?
Confiscation of interest is a highly regressive form of taxation.
Increased costs rates that will inevitably be the consequence will further limit access to justice.
Increased overheads and reduced income will result in firms reducing the extent of pro bono activities, yet further negatively impacting access to justice. This is contrary to the current campaign by the Ministry of Justice for lawyers to provide more advice to those in need, pro bono.
33. Is there further evidence (including data, or case studies in other jurisdictions) you can share that could inform our equality analysis for the proposed scheme?
No.
Do not further proceed with the proposals for this proposed scheme.
It is contrary to all natural justice to penalise people because they work in a certain sector or have specific qualifications.
It is contrary to all natural justice to penalise people because they have need of legal services and place funds with their lawyer to complete transactions.
As small, high street firms close, there is less choice for those who need legal services. The proposed scheme is contrary to the basic principle of supporting the rule of law by diminishing access to justice.
Conclusion
The Society does not support the implementation of a scheme such as that proposed.
