An engagement letter is the contract between you and your client. It sets the scope of services, responsibilities, fees and payment terms, AML obligations, complaints procedure, limitation of liability, termination terms, and ownership of records. ICAEW, ACCA and AAT all require members in practice to issue an engagement letter for every client and to update it when scope changes. Reuse a robust template, customise the schedules, and review at least annually.
Why the engagement letter matters
The engagement letter is your primary protection in any client dispute, complaint or PII claim. It is also a regulatory expectation: ICAEW, ACCA and AAT all require members in practice to have a written engagement letter for every client engagement. A clear engagement letter:
- Defines what is in and out of scope (and therefore what is chargeable extra)
- Sets responsibilities for record-keeping, deadlines and provision of information
- Documents fees, billing frequency and payment terms
- Records consent for AML, data sharing and electronic identification
- Caps and shapes liability in the event of a problem
- Makes disengagement orderly
The standard structure
Most UK accountancy engagement letters comprise:
- A covering letter (the "letter") setting out the engagement and key contacts
- Standard terms of business (the firm-wide T&Cs)
- Service-specific schedules (one per service: accounts, corporation tax, payroll, VAT, personal tax, bookkeeping, etc.)
Keep the letter short and personal; put the technical detail in the schedules.
Section-by-section checklist
Cover letter
- Client name, registered office and contact
- Date and partner/principal responsible
- Brief introduction to the engagement
- Reference to attached schedules
- Acceptance instructions (signature or e-signature)
Standard terms of business
- Definitions and interpretation
- Period of engagement and applicability of standard terms
- Your obligations as the accountant: professional standards, scope, conflicts
- The client's obligations: providing accurate and timely information, approving deliverables
- Fees, billing frequency, payment terms, statutory interest, stop-work clauses
- Limitation of liability: aggregate cap, exclusion of indirect losses, time limits for claims (subject to professional body and legal limits)
- Confidentiality and use of subcontractors
- Anti-money laundering, beneficial ownership, electronic ID checks
- Data protection (UK GDPR), processor/controller status, retention
- Complaints procedure, including reference to your professional body
- Termination and disengagement
- Ownership of working papers and lien rights
- Quality control, file review and reliance disclaimers
- Governing law (England & Wales / Scotland) and jurisdiction
Service-specific schedules
Use a separate schedule per service. Each should cover:
- Scope: exactly what is included (and explicitly excluded)
- Responsibilities: who does what (client vs accountant)
- Deliverables: what the client receives, in what form, by when
- Reliance and limitations: what the work is and is not (e.g. compilation, not audit)
- Information requirements: what records the client must provide and by when
Common schedules include:
- Limited company year-end accounts and corporation tax
- Personal self-assessment
- VAT returns under MTD
- Payroll and employer obligations
- Bookkeeping
- Confirmation statement and registered office
- R&D tax credits
- Independent examination (charity)
- Statutory audit (if relevant and authorised)
Where to source a template
Do not draft from scratch. Use a tested template tailored to UK regulation, then customise. Reliable sources include:
- Mercia Group engagement letter templates (subscription)
- ICAEW, ACCA and AAT specimen wording (member resources)
- Practice management software with engagement letter templates (e.g. Senta, Karbon, Glide)
- A specialist accountancy lawyer for bespoke clauses
Engagement letter content changes with regulation: AML rules, MTD, UK GDPR, Economic Crime Levy, basis period reform and PCRT updates have all driven recent template changes. Refresh your template at least annually.
Getting the letter signed
- Send the letter for e-signature with your onboarding (DocuSign, HelloSign, AdobeSign, or your practice management tool)
- Do not start substantive work until the letter is signed
- Keep signed copies in the client file with the engagement schedules referenced
- Re-issue when scope changes materially or at agreed annual review
Reviewing and updating
Review your standard terms at least annually. Trigger a fresh letter or addendum when:
- You take on a new service for the same client
- The fee structure changes materially
- Regulation changes affecting your scope or AML obligations
- The client's structure changes (e.g. incorporation, group restructure)
Key Takeaways
- An engagement letter is required for every client by ICAEW, ACCA and AAT
- Use a covering letter, standard terms of business, and service-specific schedules
- Cover scope, responsibilities, fees, AML, data protection, complaints, termination and ownership of records
- Use a tested template (Mercia, professional body, practice management software) and customise per client
- Refresh templates at least annually for regulatory change
Frequently asked questions
Is an engagement letter legally required?
It is required by ICAEW, ACCA and AAT for members in practice. Independent of professional rules, an engagement letter is the most important contract you have with the client and the strongest defence in any dispute or PII claim.
Do I need a new engagement letter every year?
Best practice is to issue or confirm engagement annually, particularly when fees change. At minimum, refresh standard terms periodically and re-issue on material scope changes.
Can I cap my liability in the engagement letter?
Yes, within reason and subject to legal and professional body limits. Aggregate caps (e.g. a multiple of fees), exclusion of indirect losses, and time-bar clauses are common. ICAEW, ACCA and AAT publish guidance on permissible caps.
What's the difference between standard terms and the schedules?
Standard terms are firm-wide, identical for every client. Schedules are service-specific and describe exactly what work is being done for this client. Together they form the engagement.
What if a client refuses to sign?
Do not start substantive work. Use the conversation to resolve any specific concerns; if the client cannot accept reasonable engagement terms, decline the engagement.