Ministry of Justice Proposal to Tax Law Firm Client Account Interest Faces Opposition
The legal sector warns that a proposed scheme to divert interest from client accounts to the Ministry of Justice could harm smaller firms and increase costs for clients.
The legal sector warns that a proposed scheme to divert interest from client accounts to the Ministry of Justice could harm smaller firms and increase costs for clients.
· Updated
The Ministry of Justice (MoJ) is considering a proposal that would see a significant portion of interest earned on law firms' client accounts redirected to fund the justice department. The proposed Interest on Lawyers’ Client Accounts Scheme (ICLA) has drawn sharp criticism from across the legal sector, with many warning of potential business closures and negative impacts on access to justice.
Under the ICLA proposal, 75 percent of interest generated on pooled client accounts and potentially 50 percent of interest from individual client accounts could be remitted to the government. This move is intended to contribute to the justice system, with former Secretary of State for Justice David Lammy stating that unearned income could be better invested in strengthening the system.
However, legal bodies like the City of London Law Society (CLLS) and The Law Society of England and Wales have voiced strong opposition. Colin Passmore, chairman of the CLLS, described the proposal as "clearly problematic for smaller firms" and another attempt to impose additional taxation on solicitors, which he believes will increase costs for clients and drive them towards unregulated providers.
Concerns have also been raised about the financial implications for law firms. Data suggests that top UK law firms generated hundreds of millions in client account interest in recent years, a source of income that some firms, particularly smaller ones, rely on. Critics argue that diverting this income could lead to hundreds of firms going out of business and could ultimately result in a loss of tax revenue if partner profits fall.
FAQ
What is the proposed Interest on Lawyers’ Client Accounts Scheme (ICLA)?
The ICLA is a proposal by the Ministry of Justice to collect a portion of the interest earned by law firms on client accounts to help fund the justice system.
What are the main concerns raised by the legal sector?
The legal sector is concerned that the proposal could harm smaller firms, increase costs for clients, reduce access to justice, and potentially lead to law firm closures.