Engagement letters for MTD for Income Tax clients

Every client joining MTD for Income Tax needs an updated engagement letter, because the old Self Assessment schedule does not cover digital records or quarterly updates. The letter must say who keeps the records, who submits each update, which agent role you hold and when the client must send information. ICAEW added a dedicated schedule for this, Part 2 E-B, in March 2026.

Do MTD clients need a new engagement letter?

Yes. MTD changes the work from one annual return to four quarterly updates plus a year-end return, so scope, responsibilities and fees all change. HMRC’s agent toolkit, updated 2 November 2026, says professional bodies “encourage agents to consider the use of ‘letters of engagement’ which clearly define roles and responsibilities”.

Our general guide to engagement letters for accountants covers the main letter and terms of business. This page covers the MTD schedule.

What has ICAEW published?

ICAEW issued updated engagement letter templates on 13 March 2026 with several new schedules, one of them for MTD services. Its what has changed helpsheet lists the new schedule as Part 2 E-B: personal tax, individuals, sole traders and couples in MTD income tax.

The old Northern Ireland MTD VAT schedule, Part 2 L-NI, was removed and folded into Parts 2 L and 2 E-B. ICAEW says firms should tailor its templates to their own service.

What should an MTD engagement letter cover?

It should cover each of these points. The list follows the structure of ICAEW’s June 2025 draft schedule; check the final March 2026 wording before you use it.

• Sign-up: whether you sign the client up or they do it. The draft notes that signing up on a client’s behalf means agreeing to HMRC’s terms of use, including deadlines and penalties.
• Agent authorisation: how the client authorises you through your agent services account.
• Digital records: whether you keep them, the client keeps them, or the work is shared.
• Record frequency: weekly, monthly or quarterly bookkeeping.
• Quarterly updates: who submits them, and whether only after client approval.
• Year-end work: computing taxable profit on the cash basis or accruals basis, preparing the return and checking the tax calculation.
• Client approval: the client must approve the return; legal responsibility for it cannot be delegated.
• Digital links: the client confirms links between their tools are as HMRC prescribes.
• Exemptions: whether you will consider a digital exclusion application, and any extra fee.
• Excluded work: penalty appeals, record-keeping reviews and accounting date changes as separate, chargeable services.

How do you set out who does what?

Pick one responsibility model per client and write it in plainly. ICAEW’s draft gives alternative wording for each.

If a bookkeeper submits updates, they can act as a supporting agent. HMRC’s agent guidance says a client can have one main agent and any number of supporting agents. A supporting agent cannot view all income sources, finalise the tax position or submit the tax return. Name each agent’s role in the letter.

What deadlines should the letter set?

Set an internal records deadline before each HMRC deadline. ICAEW’s draft leaves a blank for “a minimum of [ ] days before submission” and says the firm accepts no responsibility for penalties if records arrive late or incomplete.

The example dates are illustrative. Note the clash: the third update falls a week after the 31 January Self Assessment deadline. The tax return is due by 31 January after the tax year, as our MTD final declaration guide explains.

Why does penalty wording matter?

Because penalty points for late quarterly updates start in 2027/28. HMRC’s penalties guidance gives one point per missed deadline and a £200 penalty at four points. Budget 2026 removed quarterly update points for April 2027 joiners in their first year, but late returns still count.

The letter should say that penalties caused by late or incomplete client records are the client’s responsibility, and that appealing a penalty is extra work.

How do you roll out new letters, step by step?

1. List April 2027 clients. Use 2025/26 qualifying income over £30,000.
2. Choose a model for each. Full service, shared or client-led.
3. Tailor the schedule. Start from your body’s template, such as ICAEW Part 2 E-B.
4. Set fees for each model. See our guide to pricing MTD services.
5. Issue and get signatures before sign-up. Signing up commits the client to HMRC’s terms.
6. Record agent roles. Note who is main and who is supporting agent.

Our client onboarding guide covers the wider process.

Frequently asked questions

Is there an ICAEW engagement letter schedule for MTD?

Yes. ICAEW added Part 2 E-B, for individuals, sole traders and couples in MTD income tax, to its templates on 13 March 2026.

Do I need a separate letter for quarterly updates?

Not necessarily. You can add an MTD schedule to the existing engagement letter, provided it sets out who keeps records and submits each update.

Who is responsible if a quarterly update is late?

The client remains legally responsible. Your letter should say when records are needed and that late or incomplete records shift penalty risk to the client.

Can a client have two agents for MTD?

Yes. A client can have one main agent and any number of supporting agents. Only the main agent can submit the tax return.

Should I send new letters before signing clients up?

Yes. Signing a client up on their behalf commits them to HMRC’s terms of use, so agree scope and responsibilities first.