Running a modern legal practice involves more than sharp advocacy and technical knowledge. You also have to meet demanding financial and regulatory requirements that change with disarming speed. The Solicitors Regulation Authority (SRA) now supervises more than 9,800 law firms and 164,000 practising solicitors. At the same time, the Office for Budget Responsibility expects professional‑services wage costs to grow by 4.1 % during 2025/26. Rising headcount and pay put payroll processes under pressure, while client‑money rules remain unforgiving.
Against that backdrop, payroll and bookkeeping for law firms have become strategic concerns. Partners need timely drawings without breaching capital rules; fee‑earners want flexible pay that reflects real hours; and every client account must reconcile to the penny. Errors can trigger SRA interventions, HMRC penalties or plain cashflow headaches.
We see these challenges every week. Coveney Nicholls provides big‑firm expertise with small‑firm values – global reach, loyal relationships and a modern, cloud‑based tool set. Our long‑term perspective means you can focus on winning cases while we keep the numbers straight and regulators satisfied.
Payroll rules in 2025/26 – what law firms must know
HMRC has confirmed that the secondary threshold for employer Class 1 national insurance is £5,000 a year for 2025/26. That low figure means most firms will pay 13.8 % national insurance contributions (NIC) on the bulk of their payroll. Meanwhile the personal allowance is still frozen at £12,570 and late‑payment interest has risen to 8.5% from 6 April 2025.
Key filing dates are as follows.
- Submit full payment submissions (FPS) on or before every pay day – late filings trigger automatic penalties.
- File P11D and P11D(b) returns for 2024/25 benefits by 6 July 2025 – HMRC now issues monthly penalties until the return is received.
- Pay Class 1A NIC by 22 July 2025 if you use electronic payment.
Keeping on top of these dates is harder when fee‑earners work flexible hours or when a case completes on a bank holiday. Cloud payroll software that links to your practice‑management system reduces manual entry and flags deadlines automatically.
Partners, members and employees – getting status right
Traditional partnerships and limited liability partnerships (LLPs) treat equity partners as self‑employed. Salaried partners may be deemed employees if HMRC’s “salaried member” tests are met. Getting the status wrong creates risk: underpaid PAYE can lead to a 15% late‑payment penalty plus NIC arrears.
Use this checklist for status reviews.
- Confirm capital at risk – less than 25% of fixed pay suggests employee status.
- Examine profit‑share variability – fixed shares look like salary.
- Document management rights – real voting power supports self‑employment.
We recommend an annual review, especially after lateral hires or promotions, so that contracts and payroll records stay aligned.
Managing holiday pay, overtime and flexible staff
Legal work is deadline‑driven. Temporary paralegals and project support ramp up for large disclosure exercises, then fall away. The Office for National Statistics reports median weekly earnings for full‑time employees of £728 in April 2024; niche legal skills push the figure higher. To stay competitive you may need to adjust rates mid‑project, making real‑time payroll visibility essential.
Try these practical tips.
- Use timesheet feeds to pull approved hours straight into payroll.
- Automate holiday‑pay calculations on the rolling 52‑week average.
- Apply the employment allowance (up to £5,000) if your structure qualifies.
Why trust accounting demands meticulous records
Client money is sacrosanct. The SRA’s Client Protection Report shows interventions rose to 65 in 2022/23, more than double the year before. Most interventions followed failures to reconcile client accounts or withdrawals without proper authority.
These daily procedures make a difference.
- Complete three‑way reconciliations – practice ledger, client ledger and bank – every five weeks or sooner.
- Post client‑to‑office transfers only after bills are raised.
- Keep suspense accounts at zero.
Modern bookkeeping software can tag transactions automatically, but human oversight is still essential. We appoint a dedicated senior bookkeeper for each firm, providing continuity and safeguarding your reputation.
Outsourcing advantages for payroll and bookkeeping for law firms
When you outsource payroll and bookkeeping for law firms to a specialist you reduce risk and free fee‑earner time. Benefits include:
- single point of contact for HMRC, the SRA and pension providers
- built‑in reviews of partners’ tax positions and drawings
- integration of bookkeeping with matter management, giving live profitability data.
Our global affiliation means we can also handle European shadow payrolls and multi‑currency bookkeeping, ideal for firms with overseas offices or clients. Yet our service model stays personal – you will always speak to the same manager.
Getting ready for growth – systems that scale
Whether you open a new office in Dublin or recruit a litigation team in Manchester, scalable systems are vital. Look for:
- open APIs so ledgers feed into BI dashboards
- multi‑entity consolidation to separate client, office and disbursement flows
- bank‑level encryption and two‑factor authentication.
We implement fully cloud‑based solutions within four weeks, which is often quicker than adding an internal bookkeeper. Our long‑term support contracts include quarterly process reviews so you stay compliant as rules evolve.
Come to us for payroll precision
Accurate payroll and bookkeeping for law firms are no longer back‑office chores; they are pillars on which growth, reputation and professional integrity stand. We have seen ambitious practices lose momentum because partner status was misclassified or client‑money reconciliations slipped. We have also watched well‑organised firms thrive, using real‑time financial data to price matters confidently, hire the right staff and impress lenders.
Putting these foundations in place demands specialist knowledge and reliable systems. That is where we come in. Our team blends chartered expertise with modern, cloud‑first processes, overseen by people who value long‑term loyalty. From drafting partnership agreements to running three‑way reconciliations, we give you clarity and control – whether you operate on the Strand or serve clients across Europe.
Ready to talk about payroll and bookkeeping for law firms? Contact us to arrange a review of your current systems and discuss how our specialist support can protect your practice and fuel growth.