This training guide explains how Interest is calculated in Insight™ Legal.
What is Interest Calculation?
The Interest Calculation function enables you to calculate the amount of interest that has accrued on monies that you are holding.
The Interest Calculator uses the dates and amounts that you input to calculate how much interest has accrued, for you to then decide what to pay to your Client.
Why is Interest Calculated?
The SRA Accounts Rules stipulate that interest must be accounted to the Client when it is “fair and reasonable” to do so. The Rules, however, do not state the definition of “fair and reasonable,” and it is therefore for the solicitor to interpret.
The solicitor must have a written policy for when interest is paid, and it must be made clear to the Client at engagement.
Where is Interest Calculation Found?
Interest Calculation can be found on the Accounts menu and within the Misc section. A single click on the Interest Calculation icon will load the screen.
How is Interest Calculated
Dates
On the Interest Calculation screen, you first enter the dates between which you have been holding the Client monies. The SRA Accounts Rules stipulate that interest due to the Client is calculated over the whole period for which the money is held.
You can either type in the relevant dates or use the calendar to select them.
You should enter the date that you received the money in the Date From field, and the date that you are calculating interest up to in the Date To field.
Insight™ Legal will then display on screen the number of days between those dates. This is the period for which you have been holding the money, and therefore, the period for which interest is due.
Amount
Enter the Amount of money that you have been holding for the Client. If the amount has varied over the period of time that you have been holding Client monies, you may need to do more than one calculation.
Rate
In the Rate field, enter the percentage rate at which you wish to calculate interest. This may be the rate that applies to the account in which the monies have been held (whether that be a designated deposit account or your main Client account), or it may be the rate that you have advised your Client that interest would be payable at.
As mentioned earlier in this document, the solicitor must have a written policy for when interest is paid, and it must be made clear to the Client at engagement.
Interest Due
Using the information that you have entered, Insight™ Legal will then display the result of your calculation in the Interest Due field.
Additional Guidance
The Old Rules( as per the Solicitors’ Accounts Rules 1998’)
Before October 2011, there were many more prescriptive rules surrounding the payment of interest to Clients.
- The rules stipulated that:
No interest need be paid to clients if:-- The amount of that interest, as calculated following the procedure set out below, amounts to £20.00 or less.
If the sum of money held does not exceed the amount shown in the left-hand column below for a time not exceeding the period indicated in the right-hand column:
The timescales and limits mentioned above are no longer referred to in the SRA Accounts Rules and instead are replaced by the requirement for solicitors to account to their Clients for interest that is fair and reasonable.
De Minimis Rule
As mentioned above, 1998 Solicitors Accounts Rules included a note about what it called the de minimis rule. This stipulated that if interest earned was less than £20.00 in total then it need not be paid. After October 2011, the de minimis is no longer referred to in the rules. However, the guidance notes state that firms may wish to apply a de minimis amount, providing the amount is reasonable and is reviewed regularly in light of current interest rates.