Interest & disbursements
Firms must account to clients for a fair sum of interest on client money and must handle disbursements according to whether they are already paid.
What "Interest & disbursements" covers
- You must account to the client for a fair sum of interest on client money held, or agree the position in writing: rule 7.1.
- The firm should operate a fair, written interest policy and explain it to clients.
- Money received to reimburse the firm for a disbursement it has already paid is business money.
- Money received in advance for a disbursement that has not yet been paid is client money until it is paid out.
- Professional disbursements, such as counsel's or an expert's fees, must be paid promptly once funds are received for them.
- Consider VAT and the tax point when deciding whether money received for costs or disbursements is client or business money.
- Keep clear records distinguishing disbursements already paid from those still outstanding.
Key cases & statutes
The authorities and provisions most likely to matter for this subtopic:
How it's tested in SQE1
SQE1 uses single best answer questions: a short factual scenario, one precise question, and five options of which only one is the best answer on the law applied to the facts. For interest & disbursements, expect to be asked what the correct legal position is, what a party may or must do, or which outcome follows — with more than one option looking arguable. Reading the facts carefully and eliminating the near-misses is the skill that earns the mark.
Where candidates lose marks
- Failing to account to the client for interest earned on client money.
- Misclassifying an advance for an unpaid disbursement as business money.
- Delaying payment of counsel's or an expert's fees after receiving the funds.
Learn and practise this subtopic
A guided lesson and exam-style questions on interest & disbursements.
FAQ
Is interest & disbursements tested on SQE1?
Yes — interest & disbursements is part of the SQE1 Solicitors Accounts syllabus (FLK2) and can appear in single best answer questions.
How is interest & disbursements examined in SQE1?
SQE1 tests it by application: you're given a realistic scenario and choose the single best answer from five options. The focus is on using the law correctly, not reciting it — knowing the leading authorities (rule 7.1 (interest), fair sum of interest) helps.