Deposit Interest Calculations
Stamp Duty Land Tax NPV and tax calculator
The Accounts rules provide that in the event that you hold Clients money on your Client account of an amount for a period as laid down in the rules you need to account to the Client for either the interest earned or for a sum in lieu of the interest.
The C-Law software contains provision for calculating the interest earned on money held on your client account from time to time. However it hardly needs saying that in order to be able to calculate interest you need to first enter the deposit interest rates that you wish to be applied to the money held for clients.
The software contains a spreadsheet which allows you to enter your interest figures and up to 3 rates can be specified for each date. (For example you may wish to give a higher rate of interest for large sums held.)
In order to comply with the rules the rates that you specify must be reasonable rates equivalent to the rate that a reasonably prudent businessman could obtain from his bank. Please read and follow the guidance in the current Law Society Accounts Rules manual.
For this reason we do NOT supply sample rates.
You can also inspect (and edit if you wish) the Law Society criteria for when interest is due to the client. You will also need to enter the number of days that it takes bank cheques to clear through your account and to bear interest.
Please note that in order for the interest calculator to operate accurately you must specify when making entries onto your ledger accounts whether the sum being credited is cleared funds. The C-Law software asks you when an entry on client column is being made to specify this - although it can be disabled. It is important not to disable this if you are going to calculate interest to clients otherwise you may find that, particularly with large sums, you may be paying too much, or too little, interest to your client.
To set up your software with the required interest rates and settings you need to go to the cashier menu on the main screen and click on settings and then select interest settings. A window will appear on your screen with a spreadsheet which allows you to enter on the left-hand side a date and then an amount and rates that apply. The date that you specify is the start date of the period for which the rates that you quote will apply.
You need to enter the dates consecutively and you need to go back to the earliest date when you will wish to perform interest calculations for.
At the foot of the window you have two buttons, one for adding a row and one for deleting the row that is currently selected. Please note that at present you cannot insert a row. If you click the button to add a row the new row is always added at the end. Select the row and column by taking with the mouse and enter the data for that particular position in the text box at the top.
After the date you enter an interest rate that applies up to the amount you specify immediately after it. You then have two more rates that you can enter with amounts and finally a rate that applies to everything above the final amount quoted.
Note that on the right of the form are the Law Society criteria for payment of interest. You may of course modify these if you wish but beware of changes less favourable to the Client as you may be breaking the rules!
When satisfied you need to click the OK button.
There are more settings that may need to be set up. These can be found in the screen that you get when you ask for an interest calculation. If you wish you can set these up in advance and they will be automatically applied each time you call up the deposit interest screen. To set these up go to the main screen and click the shortlist menu item and then click on "interest bearing accounts". A screen will appear headed "Deposit Interest" and near the bottom of the screen is a button labelled " deposits settings ". Click on this button and the screen will expand to show other settings.
These are fairly self explanatory but are as follows:
Cheque Clearance Time
This is the number of days that cheques take to clear and this can include or exclude weekends as indicated. The norm would be to exclude weekends.
This is the amount below which you do not wish to pay interest. Commonly set to £20.00. You can activate or deactive the de-minimis setting when you are making an interest calculation so this amount does not need to be set to zero unless you wish.
This is the amount below which no interest will be given whatever the period. This is often set to £999.99 but bear in mind the rules say that you must consider what would be fair and reasonable.
This is the number of days that must elapse after cleared funds are received before interest is calculated.
This specifies whether TR entries (ie: transfers from office to client account are deemed to be cleared funds.
This specifies whether CT entries (ie: transfers between ledger accounts) are deemed to be cleared.
This should usually be ticked.
This now completes the setting up and you can click on the cancel button.
(Note that default settings can be put back at any time by clicking the "Set default values button")
There are two modes in which interest can be calculated.
To do this makes sure the option buttons on the main screen are set to display details.
Select a ledger account. On the details screen select the "Inspect" menu and then select "Deposit Interest Calculation"
The deposit interest date selection screen appears. You will see there are two text boxes. The leftmost is for the start date for the deposit interest caculation. If you leave this blank the calculation will start from either the start of the ledger account or the start of the deposit interest rate data you have set up - whichever is the later. The date that your deposit rate data starts is shown in blue below the start date text box.
To the right is the end of period text box. You can enter the final date of the period or leave this blank when the caclulation will run to todays date. If you want to limit the calculation to the last date of movement on the client column you can leave the text box blank and check the box beneath it.
You can if you wish opt to exclude the de-minimis limit you have set up by checking the box.
Then click on the OK button. The calculation will be performed and you will be shown if any interest is due to the client using the dates and rates and parameters you have previously set up. If there is interest due the amount will be displayed and you can opt to view the calculation (and thereafter print it out if needed).
This is activated from the main screen. Either click the button on the left hand side "List Interest bearing" or click the Shortlist menu item and select "Interest bearing a/c's". Then enter the dates (as described above). Click OK and the software will search all accounts and display a listing of those accounts on which it appears that interest is due. Note that when we say "all accounts" please be aware that you can limit the accounts to a particular fee earner or category by appropriate selection of the drop down selectors above the main listing and the selection you have made on these selectors will be applied to the listing.
The total amount of interest due is shown at the foot of the listing. The calculation for any particular account can be viewed by double clicking the account in the listing (as long as the option buttons are set to "details"). If on occasions you want to view the details screen and don't want to view the calculation screen go to the menu item on the main screen headed "Options" and when you have a deposit interest shortlist you will have an item saying "Show deposit interest calcs direct" and if you select this the check against it will be removed. Then selecting an account will show the details screen in the usual way and not the deposit interest calculation.
The listing of accounts and matters in the main listing can be printed by selecting "File" and "Create Reports or Printouts" and "Printout exactly as listed".
Manual (one off) Deposit Interest calculations (including compound interest)
C-Law has a calculator built in for doing one off simple manual calculations of interest on a simple amount or principal for a given period. This is available from the "file" dop down menu on the main screen.
You will need to fill in the principal amount and the period and then the rate of interest. If you have stored rates (see above) you may leave the rate field blank and your appropriate stored rate(s) for the period chosen will be used. Otherwise you can enter the rate you wish to use.
The result can be printed if desired.
As from C-Law 2010 the calculator can if desired work out compound interest as long as you tell the system the interest break interval for adding and compounding .
Although not strictly relevant under the "interest" heading, you may wish to know that there is also a built in apportionment calculator for working out the proportion of an amount over a period for any shorter period - from the "file" drop down menu on the main screen.
Stamp Duty Land tax on lease rental NPV calculator
Note that this feature was introduced in C-Law when the change from stamp duty to stamp duty land tax first came into force - now there is a calculator on the HMRC website for calculating tax payable on leases and it would be wiser to use this.
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