What should an accountant's engagement letter include?

The short answer

An accountant's engagement letter should say who you are acting for, exactly which services you will provide and which you will not, what the client must do and by when, what you will charge, how you handle their data, your anti-money laundering duties, how to complain, and how either side can end the arrangement. Send it before the work starts, get it signed, and review it every year.

Most firms do not need to write one from nothing. ICAEW, ACCA and AAT each publish templates or sample wording for their members. The skill is in tailoring them: a template that describes services you do not provide, or leaves out the ones you do, protects nobody.

This guide takes each section in turn, says what the professional bodies expect where we have read their guidance, and covers when to send the letter, how to get it signed and what to do when the work outgrows it. It is general guidance on professional practice, not legal advice.

What an engagement letter is for

An engagement letter is the written agreement between your firm and a client. It sets out the work, the price and each side's obligations, so both of you know what was agreed before anything goes wrong.

The joint engagement letter guidance for tax practitioners, written by CIOT, ATT, ACCA and AAT and last updated on 3 March 2026, describes it as a written agreement which defines the business relationship between practitioner and client. It gives three reasons to issue one.

• It manages expectations. The client knows what they are paying for and what they are not.
• It is your evidence. The guidance says it provides evidence of what was agreed if there is a dispute about the scope of your advice, or an allegation of negligence.
• Your insurer cares about it. The same guidance says professional indemnity insurers regard the failure to issue engagement letters as an increased risk, which may raise the premium.

ICAEW makes a related point about fees. Its helpsheet on what to do if you have not issued an engagement letter says most complaints have an element of dissatisfaction over fees behind them, and suggests a practical test: could you defend the fees you invoiced in a court of law with written evidence agreed by the client?

What the professional bodies expect

Whether a letter is compulsory depends on your body and the work you do. What follows is taken from the guidance we opened. Rules change, so read your own body's current version before you rely on it.

• AAT. The Client Care Policy (issued 1 July 2025) applies to members in public practice who hold an AAT licence. It says a member must provide a letter of engagement to all clients before any professional work is undertaken, and lists what the letter must include as a minimum. That list is the most detailed of the sources here, and much of this article follows it.
• ICAEW.Its helpsheet on not issuing a letter says engagement letters are not required in all cases, but that ICAEW recommends members always consider issuing one, and that a letter is compulsory for audit work. Members who choose not to issue one must still meet their legal and professional obligations in another way, such as setting out the fee basis and the complaints route in writing. ICAEW's main engagement letters helpsheet, fully reviewed in March 2026, gives sample wording and describes itself as best practice guidance, not a professional standard.
• ACCA, CIOT and ATT. The joint tax guidance says ACCA strongly recommends that its members issue engagement letters to their clients, and that a practitioner must tailor the template documents to individual circumstances.
• Everyone who does tax work. Professional Conduct in Relation to Taxation (PCRT), produced jointly by AAT, ACCA, ATT, CIOT, ICAEW, ICAS and STEP, has a revised version effective from 1 January 2026. The joint guidance says a practitioner must make it clear in the engagement letter that they are bound by PCRT.

If you belong to ICB or another body, we have not summarised its rules here, so check your own body's code as well.

How the letter is put together

An engagement letter is usually a short pack, not one long letter. Splitting it up lets you add a service later without reissuing everything.

• The covering letter. Who you are acting for, when the engagement starts, the services in outline and the fees, with a request to sign and return it.
• Schedules of services. One for each service: accounts, personal tax, VAT, payroll and so on. Each says what you will do and what the client must do.
• Terms of business.The standing terms that apply to every client: fees and payment, confidentiality, data, money laundering, complaints, liability and ending the engagement. ICAEW's helpsheet says that where a firm has terms of business, they should always accompany and be incorporated into the engagement letter, and that they should be dated so it is clear which version applies.
• A privacy notice, explaining what personal data you collect and why. ICAEW and the joint tax guidance both include one in their packs.

Write a separate letter for each client. The joint tax guidance says a separate letter should be issued for each client unless agreed otherwise, and gives examples: an individual and their spouse, a company and its directors, a partnership and its partners. It does not recommend one letter covering both spouses.

Scope: what you will and will not do

The scope section is the one that matters most when something goes wrong, so make it specific. List the services by name, the period each covers, and what you will deliver. Then list what you will not do.

AAT's policy says the letter must include the nature of the assignment, the scope of the work and the format of any report you will deliver. It must also say whether the work is monthly, annual or one-off, and whether the engagement continues until the client ends it.

• Vague:"We will look after your tax affairs."
• Specific:"We will prepare your Self Assessment tax return for the year ended 5 April 2026 from the records you send us, and submit it to HMRC once you have approved it."

Exclusions deserve as much care as the services. PCRT says that where a member chooses to limit or amend the scope of services they provide, they should make this clear in writing. It also says that where wider risks should be highlighted, a member may either advise on them or identify them as matters on which the client should get separate advice. Your letter is the place to say which.

Be clear about small extra questions too. The joint tax guidance notes that clients often email or phone with "small" ad hoc queries and expect them to be covered by their compliance fee. It says a practitioner should make clear what routine work covers, and tell the client as soon as a request will cost extra.

Each side's responsibilities

Say what you need from the client, in what form and by when, and what happens if it arrives late. Late or incomplete records are far easier to raise with a client when the letter already covers them.

AAT's policy says the letter must set out the client's responsibilities, such as producing records and books, and their format and timing. For tax work, it says the client should be told that the member acts only as their agent and that the client is responsible for giving accurate information. It also requires a statement that detecting irregularities and fraud is the responsibility of the client's management and normally outside the scope of the engagement, while making clear the client must give the member full information.

• What the client sends. Bank statements, receipts, access to their bookkeeping software, letters from HMRC.
• By when. A date or a number of days before each deadline.
• Approval. That they will review and approve each return before you file it.
• Late records. Whether a shorter timescale costs more. The joint tax guidance says that if you charge extra for work squeezed into a shorter period because information arrived late, the client should know in advance.
• What you will do. Your side of the bargain: what you prepare, file and report, and how quickly you reply.

Fees and payment

The letter should state the fee or how it is worked out, how often you bill, what is not covered, and what happens if an invoice goes unpaid. How to set the fee itself is a separate question, covered in our guide to pricing bookkeeping services.

ICAEW members have a written rule here. The ICAEW helpsheet quotes paragraph R330.5 of its Code of Ethics: fee quotes or details of the basis of fees must be given in writing, either before the engagement begins or as soon as possible after it starts, and this would normally be in the engagement letter. The helpsheet suggests confirming:

• whether you charge on a time spent basis, or a fixed fee;
• any estimate, quotation or indication you have given;
• what the fee covers and, ideally, what it does not;
• how future fees will be worked out if they differ from the first, and how and when the client will be told about changes;
• any likely disbursements you know about.

AAT's list adds the treatment of expenses, an estimate with hourly rates where no fixed fee is agreed, any taxes payable on top of the fee, and the action you will take if a fee is unpaid, including interest and at what rate, stopping work and debt recovery. If you might ever hold on to a client's records until a bill is paid, AAT says you must not exercise that right of lien unless your letter mentioned it, and you must take legal advice before doing so.

Timescales and keeping in touch

Say when the work starts, which period it covers and when the client can expect each piece of work. AAT's policy asks for the date work is expected to start, whether that depends on the client providing information, how long the work will take and when reports will be delivered.

The joint tax guidance adds that the covering letter should state the start date and the tax year or accounting period the first work relates to. If the previous accountant is finishing earlier years, say who is doing what, so no year falls between two firms.

This section is also a good place to say how you will stay in touch during the year: deadline reminders, a note when rules change that affect the client, and how quickly you answer emails. A promise like that is easy to make and easy to forget in January. Some firms keep it partly through a regular presence on social media, where clients see the reminders and news alongside everything else. If you do that, Pillr is built for accountancy firms: it reads your website, drafts a month of posts in the firm's voice, and schedules them to LinkedIn, Facebook and Instagram once a partner has approved each one.

Confidentiality and data

Tell the client how you keep their information confidential and how you handle their personal data. PCRT says confidentiality may be an express term of the engagement letter, and that where it is not, a court would in most circumstances treat it as an implied term. Writing it down removes the doubt.

AAT's policy asks for whether you are registered with the Information Commissioner and your obligations for processing the client's data securely under data protection law. It also asks for who owns the books and records created in the work, and your policy on keeping, returning and destroying records. Both the ICAEW and the joint tax packs include a privacy notice for this purpose.

Anti-money laundering

Carry out your money laundering checks before you agree to act, and use the letter to explain the obligations that continue afterwards. The joint tax guidance leaves anti-money laundering out of its templates for exactly that reason: the obligations should be satisfied before a practitioner agrees to act for a new client.

AAT's policy still asks for the letter to set out the member's obligations under the Money Laundering Regulations, including due diligence, risk assessments, record keeping and suspicious activity reporting. Telling the client up front that you will ask for identity documents, and may need to update them, saves an awkward conversation later. The checks themselves are covered in our guide to starting an accounting firm.

Complaints

Name the person a client should contact to complain, and tell them they can complain to your professional body. ICAEW, AAT and the joint tax guidance all ask for this.

• ICAEW. The helpsheet on not issuing a letter quotes Disciplinary Bye-law 7: a firm must ensure all new clients are made aware in writing of the principal to contact if they wish to complain, and of their right to complain to the Institute.
• AAT. The letter must say how complaints will be handled, name the principal responsible for complaints management, and say that unresolved complaints can be referred to AAT.
• Joint tax guidance.All new clients should be told in writing the name of a person who can receive complaints, and of their right to complain to the practitioner's professional body.

AAT's list also asks for confirmation that a continuity arrangement is in place, so an alternate can deal with the client's affairs in the event of the member's permanent incapacity or illness. For a sole practitioner, that line reassures clients as much as it satisfies the rule.

Ending the engagement

Say how the engagement ends and how much notice each side gives. The joint tax guidance says the letter or terms should make clear when an engagement begins and ends: a one-off job ends when the work is done, and for an ongoing retainer a practitioner should not stop acting without giving written notice, unless the law requires it.

Cover what happens to records and software access when you part, and what work you will finish. AAT's policy says that when either side ends an engagement, the member must confirm it with a disengagement letter unless there is good reason not to, listing the work that will and will not be completed. ICAEW publishes separate disengagement helpsheets alongside its engagement letter guidance.

Individual clients may also have a right to cancel. ICAEW's helpsheet says that where terms are agreed with a consumer at a distance (for example, without meeting face to face) or away from your premises, the client usually has a right to cancel within 14 days and must be told about it. Both the ICAEW and joint tax packs contain wording for this.

When to send it and getting it signed

Send the letter before you start work, and ask for a signed copy back. AAT says before any professional work. The joint tax guidance says at the outset of an engagement. For fees, ICAEW's rule allows the written basis to follow as soon as possible after the start, but the simplest habit is to send everything together, before work begins.

The joint tax guidance says it is always advisable to insist on the letter being acknowledged, preferably by return of a signed copy. Some clients never sign. If you do the work anyway, the guidance says you would need to prove the letter reached them and show they accepted it by their actions. An email confirming receipt, a note of a phone call in which they mentioned it, or the client sending in their records can all help.

Sometimes a deadline will not wait. If you need to act before the letter is signed, the guidance recommends telling the client the terms the work is done under, making a file note of that conversation, and confirming in writing that the work is covered by the engagement letter once signed.

Keep the signed letter and every later version. AAT's policy says members should keep evidence of the agreed terms, including amendments, and must provide copies to AAT on request. Your client take-on checklist should not be marked complete until the signed letter is on file.

Reviewing and updating the letter

Review every client's letter once a year, and update it whenever the work, the fee or the client changes. A letter written for a sole trader three years ago rarely fits the limited company they run today.

• Every year. The joint tax guidance strongly recommends an annual review. AAT says the letter should be reviewed regularly.
• New services or new terms. AAT says the member shall issue a new engagement letter where new services are to be undertaken or terms need to change. The joint guidance says you can usually send a tailored covering letter and the new schedule, without reissuing the whole pack.
• The client changes. If a client incorporates, merges or converts to an LLP, the joint guidance says a new letter is needed for the new entity.
• Your firm changes. If you move from sole practitioner to partnership, LLP or company, or back, the same guidance says new letters should go to all clients concerned.

Do not rely on posting new terms on your website. The joint guidance says terms can only be varied by agreement, and recommends writing to each client to tell them about the new terms and asking them to confirm they accept.

When the work grows beyond the letter

When a client asks for something the letter does not cover, say so before you do it, agree the fee, and put the change in writing. Scope creep often arrives in small steps: the extra bank account, the rental property, the "quick question" about selling shares.

PCRT says a member should take care not to stray beyond the agreed terms of the engagement. If they do exceed the scope, they should agree revised terms with the client and check that their professional indemnity insurance covers the extra work. The joint tax guidance says that if you agree to additional work after issuing a letter, a new letter or updated schedules should be issued, unless the work is already covered by an ad hoc advice section in the original letter.

• Name it."This is outside the work in our engagement letter."
• Price it. The hourly rate from your letter, or a fixed quote.
• Confirm it. An email the client replies to, then an updated schedule if the work will recur.
• Decline it if it is not your field. Point the client to a suitable adviser, as your exclusions section said you would.

The same goes for advice given in passing. The joint guidance says confirming advice in writing gives the greatest protection to both sides, and that if a client will not pay for a written letter, a short email confirming the gist of what you said is strongly recommended.

A checklist for your own letter

Take one current client's letter and check it against these questions. Every "no" is a gap to close at the next annual review, or sooner.

• Does it name exactly who you act for, with one letter per client?
• Does it list each service, the period it covers and what you will deliver?
• Does it say what you will not do, and where the client should go instead?
• Does it say what the client must send, by when, and that they approve returns?
• Does it state the fee or its basis, what is not covered, and how extras are charged?
• Does it say what happens if an invoice is unpaid?
• Does it cover confidentiality, data and your privacy notice?
• Does it explain your anti-money laundering obligations?
• Does it name the person to complain to and the right to complain to your body?
• Does it say how either side ends the engagement, and with what notice?
• If you do tax work, does it say you are bound by PCRT?
• Is there a signed copy on file, dated within the last year?

Start from your own body's template rather than one found online, because it will reflect your body's rules. ICAEW's helpsheet also warns that, because letters need professional judgement to tailor, AI software should be used with caution in drafting them. If you are setting up a new practice, our guide to starting an accounting firm puts the engagement letter in the wider list of things to sort before your first client.

Once the paperwork is in order, the next job is usually finding more clients to send it to. Our guide on how to get clients as an accountant covers that, and you can paste your firm's URL on the Pillr home page to see the posts it would draft from your own website, or look at plans and pricing.

This guide is general information, not legal advice or advice on your own circumstances. Rules and templates change, so check each linked source, and ask your professional body if you are unsure what its rules require of your engagement letters.

Questions accountants ask