Keeping client money separate from business money
Why some UK businesses need formal client-money arrangements, why ordinary firms should still separate funds clearly, and when sector rules matter.
Do not assume every payment received from a client is automatically “client money” in the regulatory sense. Formal client-money rules depend on the sector and the activity. FCA-regulated firms can be subject to CASS, while solicitors, estate agents and other professions can have different rules. If your business is required to safeguard client money, use the account structure and reconciliations required by that regime. If it is not, still keep customer funds, deposits and business income clearly identifiable in your records.
“Client money” has a specific regulatory meaning in some sectors
A business can receive money from customers without being subject to the FCA Client Assets Sourcebook. CASS applies to particular regulated activities and firms; other professions can be governed by their own client-account rules. That distinction matters because opening a second ordinary business current account does not automatically satisfy a statutory or professional safeguarding requirement.
Before deciding how to bank the money, identify which regulator, professional body or contract governs it. If you are unsure, obtain sector-specific advice rather than relying on generic banking guidance.
Where formal client-money rules apply, the bank account is only part of the control
Regimes such as FCA CASS can require money to be held and reconciled in a prescribed way so it remains distinct from the firm’s own funds. The purpose is to protect clients if the business fails and to make ownership clear. Naming the account “client account” is not enough if the wider records and reconciliations do not meet the applicable rules.
Build procedures around receipt, allocation, permitted withdrawals, reconciliations and escalation of discrepancies. The bank statement should be capable of being tied back to the client ledger without guesswork.
Ordinary businesses still benefit from separating restricted or refundable funds
Even where no formal client-money regime applies, it can be useful to separate deposits, event funds or money held for a specific purpose from general operating cash. This reduces the risk of spending money that may need to be refunded and gives management a clearer picture of free cash.
Use accounting categories or a separate account only if it genuinely improves control. The key is that the records explain whose money it is, why the business holds it and when it can become ordinary revenue.
Do not mix safeguarding language with normal business banking
Banks may offer separate accounts, designated accounts or trust-style products, but the product name does not determine the legal treatment. Tell the bank clearly what the money represents and ask whether the account is suitable for that use. Some providers restrict the purposes for which a standard business current account can be used.
If the business needs a new account because its legal structure or activity has changed, review the account using the same criteria in our guide to choosing a business bank account.
Reconciliation is the core discipline
At any point the business should be able to explain the bank balance by reference to individual clients or the business’s own funds. Reconcile frequently, investigate differences promptly and keep evidence for transfers between accounts. A large unexplained suspense balance is a warning sign that records are no longer controlling the money.
For businesses that also receive substantial cash, our guide to evidence for large business cash deposits covers source-of-funds records and banking questions.
Get specialist guidance before moving client balances between providers
Switching an ordinary business account can be straightforward, but moving safeguarded or client money can create additional notification, designation and reconciliation requirements. Do not use an automated current-account switch until you know it is permitted for the account and your regulatory regime.
Plan the cutover with the bank, accountant or compliance adviser and preserve the old statements. The objective is uninterrupted traceability: every client balance should be identifiable before, during and after the move.
Frequently asked questions
Is every customer deposit “client money”?
No. The regulatory meaning depends on the activity and sector. Check the rules that apply to your business.
Can I just open a second business account and call it a client account?
Not if a formal safeguarding regime applies. The account structure, designation, reconciliations and other controls must meet that regime.
Why separate customer funds if no specific rule requires it?
It can make refunds, restricted funds and free operating cash easier to manage and reduces the risk of spending money the business may still owe back.
Sources and verification
Oliver Grant — Markets & Regulation Writer
I would begin this topic by refusing to use “client money” as a loose synonym for any money a customer sends. In regulated sectors the term can trigger detailed safeguarding duties, while an ordinary trading business may simply be receiving revenue or a refundable deposit. That legal classification needs to be settled before choosing the banking structure. Where a formal regime applies, I would follow that regime exactly and treat the bank account, ledger and reconciliation process as one control system. Where it does not, I still like clear separation when the business holds money that is not yet economically its own. The management question is simple: if the business failed tomorrow, could someone looking at the books identify which part of the cash belongs to whom? I would reconcile such balances frequently and investigate differences immediately. I would also be careful when switching banks or changing account type, because moving safeguarded funds can require more than moving an ordinary current account. The bank can provide product information, but it cannot replace sector-specific legal or compliance advice. The safest structure is the one that makes ownership, permitted use and reconciliation unambiguous.
MyBankAnswers uses official provider and UK regulatory sources wherever practical. Information is general and does not constitute financial advice.