Client accounting for letting agents: three-way reconciliation, to the penny

Yes, if they hold client money in England. Every approved client money protection scheme must require its members to hold client money in a client money account with a bank or building society authorised by the Financial Conduct Authority (SI 2018/751, reg 5(2)(f)). That account may hold only client money, apart from money paid in to replace a sum taken out in error and interest, and its name must include the word “client” or an abbreviation of it (reg 5(3)). Propertymark, Client Money Protect, UKALA and RICS also want a letter or acknowledgment from the bank on file.

Not under the client money regulations when the deposit is held in accordance with an authorised tenancy deposit scheme: both regulations leave that money out of their definition (SI 2019/386 and SI 2018/751, reg 2, as amended in 2019). Deposit protection is its own law, in the Housing Act 2004. A deposit an agent holds under an insurance scheme still sits in a client account, as Propertymark’s and safeagent’s papers expect; one held by a custodial scheme has left the agent’s account.

A holding deposit can be no more than one week’s rent, the year’s rent divided by 52 (Tenant Fees Act 2019, Sch 1 para 3). Unless another day is agreed in writing, the deadline for agreeing the tenancy is the 15th day counting the day it was received, and Schedule 2 sets when it must be repaid within 7 days and when it may be kept. In LetCompliance a holding deposit the agency takes is held in the client account: it counts in the client ledgers from the day it arrives until it is repaid, applied to the first rent or the tenancy deposit, or kept for the landlord.

It sets three figures side by side on one day: the client account’s bank balance, adjusted for money recorded but not yet through the bank; the client cash book, which adds up every receipt and payment recorded; and the total of the client ledgers, what is held for each client. All three should agree, and any difference is explained. Propertymark’s rules (rule 1.2) and RICS’s standard both describe these three parts; neither client money regulation sets the check itself.

As often as the agent’s scheme says; neither client money regulation sets a frequency. Propertymark asks for at least once every two calendar months and within ten weeks of the last (rule 1.23.1). UKALA asks for not less than once a month. RICS says a reconciliation must be regular and should be done once a calendar month, or quarterly where there are only one or two transactions a month. Client Money Protect says at regular intervals. Propertymark’s reporting page calls reconciling the bank and the ledger daily good practice.

Propertymark’s reporting page says an existing business “may simply use a spreadsheet to reconcile against the bank”, for firms with a client account balance under £1 million that are joining or renewing Company Advantage. The other schemes’ rules read for this page do not say either way, so check with the scheme. Whatever the tool, the three figures and the sign-off are the same.

If more was paid out for a landlord than was held for them, another client’s money may have covered the difference. A ledger below zero only because a cost has been taken off and not yet paid has used no other client’s money yet, though paying that cost before more money comes in for the landlord would. Propertymark allows no payment beyond the total held for that client (rule 1.14.10), safeagent allows a payment only when enough is held to that client’s credit, UKALA says no client is paid more than the client money held for them, and RICS says overdrawn balances must be prevented by the firm’s systems and controls (2.2.5). LetCompliance flags a landlord client below zero by more than their unpaid costs on the reconciliation, and Payments holds back a statement that the landlord’s money does not cover.

When they are due under the client’s written terms or authority. Propertymark allows it when a fee is due under written terms, or invoiced in writing with no objection (rules 1.14.7 and 1.14.9). RICS says to invoice or notify the client first unless there is written authority (2.2.4). Client Money Protect asks for written approval, for example in the terms of business, and UKALA says fees due under a written agreement should be taken at least monthly. In LetCompliance a fee becomes the agency’s when the statement is issued, counted on the last day of the month it covers, and only as far as that landlord’s money covers it.

The client, unless agreed otherwise in writing, under Propertymark’s rule 1.12.1 and RICS’s standard (2.2.3). UKALA counts interest as clients’ money, and Client Money Protect asks for client money to be repaid with any interest earned, where feasible, as the regulations do (SI 2018/751, reg 5(2)(e)). LetCompliance does not handle interest on the client account, so the agency accounts for it itself.

UKALA’s standard says to treat it as clients’ money until it is identified. Propertymark puts old or dormant balances that cannot be traced into a client suspense ledger that is still reconciled (rule 1.42), and lets them go to charity only with its agreement, usually after at least six years (rule 1.44). RICS allows payment to charity after three years, with a receipt and an indemnity. LetCompliance has no separate suspense ledger: a bank line that cannot be matched gets a note saying what it is, or stays listed as a difference.

Neither client money regulation sets a period; the schemes do. Propertymark asks for six years from the end of the accounting period, or from a nil balance after the client relationship ends if later (rule 1.21). UKALA asks for a minimum of six years plus the current year, and RICS’s guidance suggests at least six years. Propertymark’s list of records includes a client cash book, a ledger for each client and the reconciliations (rules 1.19 and 1.20).

It depends on the scheme. Propertymark asks for an Accountant’s Report every year, or one of the alternatives in its rule 1.48, and its reporting page requires the report for a firm with over £1 million in its client accounts, not counting registered insured deposits. safeagent asks for an interim report after the first six months, then one within six months of the end of each accounting year (standard 4). Client Money Protect asks for an accountant’s declaration giving two reconciliation dates, or a client account health check by its preferred supplier. RICS’s scheme rules and Money Shield’s rules were not read for this page.

No to both. LetCompliance holds no client money and moves none: the agency pays landlords and moves its fees from its own bank, using the payment file LetCompliance draws up, and rent by Direct Debit is collected on the agency’s own Stripe account. There is no live bank feed: the client account’s statement comes in as a CSV file, and each line is matched to the records it pays or receives.

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