A routine tax return becomes a £50,000 professional indemnity claim. The client says you agreed to handle their VAT registration. You have no written record of what was agreed. Your insurer settles, and your premiums double.
Without an ACCA-compliant engagement letter, this isn’t just possible. It’s probable.
For ACCA members and UK accountants, engagement letters form your first line of defence when disputes arise. They clarify what you will and won’t do, establish fee structures, and create boundaries that protect your practice. More critically, they satisfy regulatory requirements that could determine whether you keep your practising certificate.
This guide explains what makes an engagement letter ACCA-compliant, why regulatory bodies scrutinise them during audits, and how to create one that protects your practice.
Key Takeaways for Busy Accountants
- ACCA mandates engagement letters for all client relationships before work begins, not as a best practice but as a professional requirement
- Engagement letters define scope, fees, and responsibilities, preventing the most common sources of client disputes
- Templates must include specific clauses covering data protection, confidentiality, dispute resolution, and professional standards
- Different services require different schedules, including tax, audit, bookkeeping, payroll, VAT, and MTD compliance
- Letters must be updated annually or whenever services, fees, or regulations change
- Digital signatures are legally binding and acceptable under UK law for engagement letters
- Free ACCA templates are available through the ACCA website, updated regularly for regulatory changes
- Automation tools like FigsFlow can generate compliant letters in 30 seconds, eliminating manual drafting
What is an ACCA-Compliant Engagement Letter?
An ACCA-compliant engagement letter is a formal written agreement between an accountant and their client that establishes the legal terms of their professional relationship. It functions as a contract, but with language and structure specifically designed for accounting services.
The letter outlines:
- what services will you provide
- what you won’t provide
- how much you’ll charge
- what each party’s responsibilities are
Think of engagement letter as your professional boundary document.
Unlike generic contracts, ACCA-compliant letters follow specific formatting and content requirements set by the Association of Chartered Certified Accountants. These requirements ensure consistency across the profession and protect both members and their clients.
The document becomes legally binding once both parties sign it. This means it can be enforced in court if disputes arise about scope, fees, or deliverables.
Why ACCA Mandates Engagement Letters
ACCA requires all members to issue engagement letters under its Code of Ethics and professional standards. This isn’t guidance or recommendation. It’s a mandatory requirement for maintaining your membership.
The requirement exists because engagement letters serve multiple regulatory purposes.
- They demonstrate that you’ve established clear terms before accepting money or beginning work
- They prove you’ve explained your professional responsibilities and limitations to your client
Professional indemnity insurers also treat engagement letters as essential risk management tools. Claims are significantly harder to defend when no written agreement exists defining what you agreed to do.
ACCA’s Technical Factsheet on Engagement Letters provides the official templates and guidance all members should follow. The factsheet is updated regularly to reflect changes in UK law, tax regulations, and professional standards.
LOI vs LOE: Sounds Similar, right? Heads up: they're not.
A Letter of Intent (LOI) is a preliminary document expressing interest in a potential business arrangement. It's typically non-binding and used before formal negotiations begin.
A Letter of Engagement (LOE) is a binding contract that defines your professional services, fees, responsibilities, and legal obligations to your client. Confusing them can create legal exposure and client misunderstanding.
For complete differences, enforceability implications, and when to use each document, read the full breakdown: Engagement letter vs Letter of Intent
Why Use ACCA-Compliant Engagement Letters?
Engagement letters protect your practice from disputes, clarify expectations, and satisfy regulatory requirements. They transform verbal agreements into enforceable contracts that define what you will (and won’t) do for clients.
Here are some additional benefits of using an engagement letter.
- Legal Protection – Creates enforceable contracts that courts recognise when fee or scope disputes arise
- Prevents Scope Creep – Explicitly states what services are included, making it easier to charge for additional work
- GDPR Compliance – Includes required privacy notices and data processing terms to satisfy UK data protection law
- Fee Transparency – Specifies pricing, payment terms, and how out-of-scope work will be handled
- Defines Responsibilities – Makes clear what clients must provide (accurate records, timely information, cooperation)
- HMRC Documentation – Establishes who is responsible for filings, reducing compliance risks
Real-World Example: When a Missing Engagement Letter Cost £45,000
An accountancy firm provided bookkeeping and year-end accounts for a property developer for three years. No engagement letter was ever signed. The property developer assumed VAT advice and tax planning were included in the annual fee.
When HMRC issued a £45,000 penalty for incorrect VAT treatment on mixed-use property developments, the property developer sued the accountancy firm for professional negligence, claiming they should have identified and corrected the errors.
The accountancy firm had never been engaged to provide VAT services but couldn’t prove it. With no written agreement defining scope, the case settled out of court. The firm’s insurer paid £28,000, and their professional indemnity premiums increased by 140%.
An engagement letter explicitly stating “VAT services are not included unless separately agreed in writing” would have prevented the entire dispute.
Key Components of an ACCA-Compliant Engagement Letter
An ACCA-compliant engagement letter must include specific sections that satisfy regulatory requirements and protect both parties. Missing even one component can render your letter non-compliant during ACCA monitoring visits or leave you exposed in disputes.
The table below outlines every essential element your engagement letters must contain.
ACCA Engagement Letter Requirements: The Official Standards
ACCA’s professional standards mandate that members must establish the terms of engagement in writing before commencing work. This requirement appears in the ACCA Rulebook under client engagement obligations.
The rules specify that engagement letters must define the scope of professional services clearly. Vague descriptions like “general accounting services” don’t satisfy the requirement. You must detail specific deliverables such as preparing annual accounts, filing corporation tax returns, or managing payroll.
Members must also include their responsibilities under the Code of Ethics. This means stating that you’ll maintain professional competence, act with integrity, and comply with legal obligations, including anti-money laundering regulations.
When to Issue & Update Engagement Letters
New engagement letters must be issued before you begin any work for a new client. The letter should be signed before you receive confidential information or start billable activities.
Existing clients require updated letters when:
- Annual reviews occur (ACCA recommends reviewing on the anniversary of the original engagement date)
- Service expansions happen (bookkeeping client now wants tax advice)
- Fee changes are implemented (hourly rate increases or switching to fixed fees)
- Regulatory changes affect services (such as Making Tax Digital requirements)
- Practice structure changes (sole practitioner becomes partnership or limited company)
Specific Requirements for Different Services
Different services require different engagement letter provisions. Tax services need separate schedules for each tax type. Audit engagements must reference specific auditing standards. Payroll services require GDPR-compliant data processing clauses. Here’s what each service type must include:
Tax Services
Tax engagement letters must specify exactly which returns you’ll prepare (personal tax, corporation tax, VAT, or payroll). They must also clarify that clients remain legally responsible for return accuracy, even when you prepare the submissions.
Audit Engagements
Audit letters must reference International Standards on Auditing and clearly define the audit’s objective, scope, and limitations. They must also address the respective responsibilities of auditors and management throughout the engagement.
Payroll Services
Payroll letters require detailed data processing clauses because you’re handling sensitive employee personal information. ACCA templates include specific data processor agreements that satisfy GDPR requirements for payroll work.
How to Create an ACCA-Compliant Engagement Letter
Creating an ACCA compliant engagement letter doesn’t require starting from scratch. ACCA provides official templates that contain all required clauses and regulatory language.
Follow these steps to customise them for your practice:
Step 1: Download the Official ACCA Template
ACCA provides a suite of engagement letters. You can navigate to “Engagement letter for Tax Practitioners” or “Engagement Letter for Accounts Production” depending on your service type and download the complete pack.
The pack includes the covering letter template, privacy notice, service schedules, and standard terms and conditions. The pack also contains guidance notes explaining how to customise each section.
The templates are provided as Word documents. This allows you to customise them with your firm’s details and specific service terms. Don’t use the templates as-is without personalisation.
Review the guidance notes thoroughly before making changes. ACCA provides detailed explanations for each clause, including which sections must be customised and which should remain standard.
Access ACCA’s suite of Engagement letters: Engagement letters | ACCA Global
Step 2: Identify Your Client & Service Type
Determine the legal entity you’re serving. Is your client an individual, a partnership, a limited company, or trustees of a trust? The engagement letter must name the correct legal entity.
- For companies, address the letter to the board of directors
- For partnerships, address it to all partners or specify a nominated partner authorised to act on behalf of the partnership
Select the appropriate service schedules. ACCA provides 13 different schedules covering personal tax, business tax, company accounts, trusts, partnerships, payroll, VAT, and specialist advisory services.
You can attach multiple schedules to one covering letter. A client might need both company accounts preparation (Schedule B3) and corporation tax services (Schedule B7). Both schedules attach to a single covering letter and terms document.
Step 3: Define the Scope & Limitations
Complete the “Scope of Services” section using the relevant schedules. Be specific about deliverables. Instead of “prepare accounts,” state “prepare statutory accounts in accordance with FRS 105 for the year ending 31 December 2025.”
- Specify what you won’t provide. The “Out of Scope” section is equally important. If you’re not providing VAT advice, state this explicitly. If you won’t handle HMRC enquiries, make this clear
- Define time boundaries. State which tax year or accounting period this engagement covers. Make clear whether the engagement is for a single period or ongoing
- Include any service-specific limitations. For example, audit letters must state that you’re not verifying every transaction, only testing a sample. Tax letters should clarify that you’re relying on information provided by the client
And most importantly, address the handling of additional work. The template includes standard wording about out-of-scope services requiring separate agreements and additional fees.
Step 4: Set Fee Structure & Payment Terms
Choose your fee basis. ACCA templates provide options for time-based fees, fixed fees, or value-based pricing. Complete the relevant section with your specific rates or amounts.
If using hourly rates, list rates for each staff level (partner, manager, senior, junior). Explain how you’ll notify clients of rate changes, typically annually.
For fixed fees, specify exactly what’s included in that fee. State any circumstances that would trigger additional charges, such as late provision of information requiring rush work.
Include your payment terms. Specify when invoices are due (e.g., within 14 days or 30 days of invoice date). State whether you’ll charge interest on late payments and at what rate.
Clarify VAT treatment. All fees should be stated as exclusive of VAT, with VAT added at the prevailing rate. This prevents confusion when VAT rates change.
Setting prices can feel overwhelming. Learn how accountants structure fees, set payment terms, and handle VAT effectively. Read our full guide.
Step 5: Include Legal & Compliance Clauses
The ACCA templates include pre-drafted legal clauses covering essential protections. Review these carefully and customise where indicated.
- The limitation of liability clause is critical. This section caps your maximum liability for negligence claims. ACCA templates include guidance on setting reasonable limits based on your insurance coverage
- Data protection clauses must reference GDPR compliance. The template includes a separate privacy notice explaining how you’ll collect, use, store, and protect client information
- Professional standards clauses confirm that you’ll follow ACCA’s Code of Ethics and comply with UK regulations, including anti-money laundering requirements. These clauses are largely standard but require your confirmation
- Dispute resolution clauses outline how you’ll handle disagreements. The template suggests mediation before litigation, which can save both parties significant costs
- Termination clauses specify notice periods (typically 21 days) and conditions under which immediate termination is justified, such as client dishonesty or non-cooperation
Step 6: Obtain Client Signature
Prepare the letter for signature. Print on your firm’s letterhead or format the Word template with your branding. Include two copies, one for the client to return and one for their records.
Send the letter with a brief covering email explaining what you need. Request that the client read, sign, and return one copy. Specify your preferred method (email scan, post, or digital signature).
Digital signatures are legally acceptable. Services like FigsFlow or Adobe Sign provide legally binding electronic signatures. ACCA templates explicitly confirm that electronic signatures are valid.
Don’t begin substantive work before receiving the signed letter. You can have preliminary discussions, but don’t access client records or perform billable services until the agreement is signed.
Step 7: Store Securely and Schedule Annual Reviews
Store the signed engagement letter in your client file. Keep both electronic and paper copies in secure, backed-up locations that satisfy data protection requirements.
Create a reminder system for annual reviews. Set a calendar notification for 11 months after the letter date. This gives you time to review and update before the anniversary.
Review the letter whenever services change. If a client asks for new services mid-year, prepare an updated letter or additional service schedule immediately.
Maintain a log of all engagement letters issued and updated. This audit trail proves you’ve maintained proper documentation throughout all client relationships.
💡 Creating ACCA-Compliant Engagement Letters
You’ve seen what it takes: detailed templates, multiple steps, and plenty of admin time. ACCA’s guidance ensures compliance, but it’s far from efficient.
What if you could achieve the same compliance in minutes, not hours?
That’s where the smart, automated approach comes in.
The Smart Way Forward: Automation of ACCA-Compliant Engagement Letters
Manually preparing engagement letters takes 30–45 minutes per client: downloading templates, customising terms, formatting, and chasing signatures. FigsFlow reduces that to under a minute.
With pre-loaded ACCA-approved templates, client data auto-filled from your records or CRM, and service schedules attached automatically, FigsFlow generates complete, compliant letters in seconds.
Built-in pricing calculators handle fees, digital signatures capture client approval instantly, and your dashboard tracks every stage from draft to signed copy. Automatic reminders, version history, and multi-currency options keep everything organised and audit ready.
To see how it works in detail, read our guide: How FigsFlow Automates Engagement Letters.
🚀 Beyond Engagement Letters
FigsFlow does far more than automate engagement letters:
- Quick proposal generation that converts to engagement letters
- Built-in AML checks
- Secure document collection portal
- Legally compliant e-signatory
- Free risk assessment templates
- Full audit trails and team-wide consistency, and more
There’s too much to list here. Try FigsFlow free for 30 days and see it in action for yourself
Additional Resources
- Engagement Letters for Tax Practitioners (April 2020) – Official ACCA engagement letter pack with templates, guidance notes, and service schedules
- Engagement Letters for Accounts Production – ACCA templates specifically for accounts preparation services
- Guide to AML Identity Verification Rules for Accountants – Practical guide for accountants on AML identity verification requirements in 2025
- ID Verification in AML with FigsFlow – Step‑by‑step process for automating client identity checks within FigsFlow
- 5 Proposal Mistakes to Avoid and How FigsFlow Can Help – Common proposal errors and how FigsFlow streamlines the proposal process
Conclusion
Proper engagement letters are essential. They set expectations, protect your practice, and keep you ACCA-compliant. Doing them manually wastes time and slows everything down.
So be smart. Don’t let the hassle of manual work hold you back.
Work with FigsFlow. It generates letters in seconds, handles signatures electronically, and keeps everything tracked automatically.
Ready to Automate Your Engagement Letters?
See how FigsFlow generates ACCA-compliant engagement letters in 30 seconds, integrates AML compliance, and streamlines your entire onboarding process.
Book a Free Demo. Our team will show you exactly how FigsFlow works for your practice.
Frequently Asked Questions
Yes, for ACCA members. The ACCA Rulebook requires members to establish engagement terms in writing before commencing work. Failing to issue proper engagement letters can result in disciplinary action and make defending negligence claims significantly harder.
Annually at minimum, and immediately when services, fees, or regulations change. ACCA recommends reviewing letters on each engagement anniversary. Major regulatory changes like MTD expansion require immediate updates regardless of timing.
Yes. Electronic signatures are legally binding under UK law and explicitly acceptable for ACCA engagement letters. Services like Adobe Sign, or built-in platforms like FigsFlow, provide legally valid signatures with proper audit trails.
Both follow similar structures and legal requirements, but templates differ slightly in format and specific clauses. ACCA members should use ACCA templates, while ICAEW members should use ICAEW versions. The core components remain largely the same.
Download directly from the ACCA website’s Technical Factsheets section. The “Engagement Letters for Tax Practitioners” pack includes covering letters, privacy notices, service schedules, and standard terms of engagement. Templates are updated regularly for regulatory changes.
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