My law firm holds client funds and disbursements — how do I keep the accounting separate?

Any amount a client transfers to your firm on account of a matter — an advance against future fees, a retainer, or a settlement sum — belongs in an account kept entirely separate from the firm's own operating account, and it isn't booked as revenue until you've actually earned it against work performed. Mixing the two isn't just a bookkeeping problem; it exposes the firm to real professional accountability if a client ever asks where their money stands.

Costs you pay on a client's behalf — court fees, notarisation charges, an external expert's invoice — carry a different treatment from your own fees. If you paid it as the client's agent, at the exact amount with no markup, and the client was always the true beneficiary of that cost rather than the firm, it can be treated as a disbursement and passed through to the client outside the scope of VAT. If instead the firm commissioned the service in its own name and then re-billed it as part of the overall invoice, it's treated as part of your taxable supply and carries the standard 5%, same as your fees. That distinction shapes how the invoice itself is drafted, so it needs to be settled at the outset of each file, not worked out afterward.

Matters that run over long periods — litigation or ongoing advisory work — need a clear revenue recognition policy: either against agreed milestones set out in the engagement letter, or against actual hours recorded, rather than waiting until the matter closes entirely to book any revenue. RASEEKH helps law firms build a chart of accounts that keeps client money separate from fee income and sets disbursement invoicing up correctly from day one.