9. Interest bearing accounts
(Section 114 of the Act)
Trust Account Guidelines contents
Deciding whether to deposit trust money in an IBD Account
9.1 It is your duty to ensure that trust money earns interest for the benefit of the client concerned wherever practicable, unless the client instructs otherwise. When you receive trust money, you must therefore decide whether it should be deposited in an Interest Bearing Deposit Account ("IBD Account").
9.2 Where the amount of interest likely to be earned is minimal compared with the administrative cost, you may decide that it is impracticable to deposit the trust money in an IBD Account.
IBD Accounts must be separate
9.3 Each client must have its own separate IBD Account. The bank records must show that there are separate client accounts, grouped so that it is clear that all of the IBD Accounts are within the control and responsibility of your practice.
How the banks administer IBD Accounts
9.4 Banks provide "bulk deposit" facilities for IBD Accounts, as follows:
- The bank maintains separate accounts, interest and tax calculations for each client, but groups the accounts as the practice’s facility.
- The bank supplies you with pads of deposit forms and withdrawal forms that can be presented at the bank or (by arrangement) faxed to the bank. However, it is more common nowadays for deposits and withdrawals to be effected by electronic transfer.
- The bank credits each IBD Account with interest as it accrues.
- At the month end, the bank produces a list of bulk deposit balances. The list includes other information such as interest credited that month.
- On 31 March each year, the bank will issue Resident Withholding Tax certificates.
IBD Account ledgers
9.5 You must open a separate section of ledger cards or computer equivalent to record clients' funds held in IBD Accounts. The trust account ledger should include a control account that mirrors the total value of the IBD Account. The IBD Account ledger provides a record of all trust money held in IBD Accounts for clients. The ledger must be reconciled with the month end information from the bank.
9.6 You should make entries to the ledger and to the Control Account (see below).
9.7 You can modify this suggested procedure to accommodate a computerised system. Some computer systems incorporate clients' IBD Account features with an automatic flow through to the trust account ledger of deposit, withdrawal and interest entries.
9.8 When the bank sends you Resident Withholding Tax certificates, you must send them on to the relevant clients for action by them in respect of their tax returns.
9.9 A sample format is as follows.
Interest Bearing Deposit Account Ledger
Client: IBD Control A/C
Ledger Card No.
|
Date |
Details of Transaction |
Ref |
Debit |
Credit |
Balance |
|---|---|---|---|---|---|
|
01.06.2010 |
Opening balance |
|
|
|
747,385.49 |
|
05.06.2010 |
Deposit R L Howarth |
|
|
75,400.00 |
822,785.49 |
|
|
Deposit B R Jones |
|
|
42,000.00 |
864,785.49 |
|
08.06.2010 |
Final withdrawal |
|
75,432.97 |
32.97 |
789,385.49 |
|
17.06.2010 |
Part withdrawal |
|
5,000.00 |
|
784,385.49 |
|
30.06.2010 |
Net interest added to client accounts as per bank schedule |
|
|
7,843.46 |
792,228.95 |
Client: R L Howarth
Ledger Card No.
|
Date |
Details of Transaction | Ref | Debit | Credit | Balance |
|---|---|---|---|---|---|
| 05.06.2010 | Deposit | 75,400.00 | 75,400.00 | ||
| 08.06.2010 | Withdrawal and final net interest | 75,432.97 | 32.97 | 0.00 |
Notes:
- Transactions are recorded in the IBD Control A/C and the balance will be agreed with the bank statement for the IBD A/C.
- Every entry on the IBD Control A/C will be posted to the Client IBD ledger A/C.
- On final withdrawal for an individual client, the net interest added by the bank to the final withdrawal will also be recorded as a deposit.
- Many banks credit interest quarterly to the balance held by them on the quarter date, and it is added to the principal amount on deposit. Hence this net interest must also be added to the individual IBD client ledger A/C as per the bank schedule and the total recorded as a deposit in the IBD Control A/C.
Transfers to/from IBD Accounts
9.10 The deposit/withdrawal forms supplied by the banks should be used wherever possible as the authorising document, signed by a trust account cheque signatory and faxed to the bank for action. The bank should then debit or credit the trust bank account, avoiding any need for cheques and the greater risks associated with them. There should be an instruction to the bank that withdrawals are to be credited only to the trust bank account.
9.11 Withdrawals should be recorded in the receipt book (or equivalent record – refer guidelines 5.5 – 5.7) similarly to a direct credit. One receipt for bulk withdrawal will suffice, with a copy of the schedule attached to it for posting purposes.
9.12 Where online banking is used, the procedures in guideline 9.10 should be appropriately modified.
9.13 Where practicable, all trust bank accounts should be at the same bank. Particular care should be taken where the IBD Account and trust bank accounts are in different banks.