Setting up – Procedural matters

Letters of engagement (and disengagement letters)

For those already working for someone else and in practice, issuing letters of engagement to clients should be normal practice, though your employer’s legal team may have written the one that you have been using. Setting out the terms on what work you will perform for each client is important. It may seem a chore now, but if there is a dispute between you and your client, perhaps on what is and is not covered by the fee, you will be grateful the terms are agreed in advance. Remember too, that you don’t just issue one when you first take your client on, but regularly review what you have agreed and what work you are doing, so if you have only ever undertaken a clients corporation tax issue a new agreement if you agree to put a share scheme in or take on their PAYE etc. If there is ever a dispute over fees; withholding services; holding back the submission of a return, or retaining lien over a clients records, to name a few circumstances, you will be so glad you invested the extra time in putting together a comprehensive letter of engagement.

The CIOT and ATT provide guidance Engagement Letters, including sample letters and how to use them. This guidance can be accessed here

Although you will be looking to minimise costs when first setting up in practice, it could be money well spent if you engage a solicitor to write your engagement letter for you, as it can be overlooked that you might be able to save costs on your Professional Indemnity Insurance by limiting your liability in the event of a claim against your insurance through good risk management.

Don’t forget disengagement letters too, to cover the summary of services provided up to the date of ceasing to act, noting any further action to be taken by you the ‘outgoing’ adviser; a note of any outstanding matters that either the ex-client or the new advisers will need to attend to; details of any impending deadlines and the action required; your willingness or otherwise to assist the new advisers resolve outstanding issues with H M Revenue and Customs or others; and to provide copy papers to the new advisers or to allow them access to files; if relevant, details of any outstanding fees and a note indicating that the adviser has told H M Revenue and Customs that he is no longer acting for the client and that until further notice all correspondence should be sent only to the taxpayer in the event a new adviser hasn’t been appointed .

Professional clearance

It is common courtesy amongst professionals, as a newly appointed agent to a client, and as recommended by the professional bodies, to write to the existing agent and seek confirmation from them than that they know of no reason why you should not accept the appointment and to ask for factual information about the clients professional affairs, such as a copy of the last return completed; details of previous elections and claims or holdovers and other relevant information to assist you in handling the future and on-going affairs of that client. It is a good opportunity to ask about any recent enquiries which may alert you to some client specific issues and matters in hand, clarifying, in agreement with the client if the existing agent is going to complete them or whether you will take them over

When you are first appointed ask the new client who is acting for them presently and seek their permission to write to them. Often the new client will inform the existing agent of your appointment, so your approach to them will not come as a surprise. In the rare case where you are asked not to contact them, you need to ascertain why and then use your own judgement, based on the facts presented to you, as to whether you still wish to act for them.

Quoting and setting fees, and retainers

In many instances you will work to a fixed fee, one which you will have negotiated with your client at the outset for each piece of work. Routine work should be relatively simple to quote for, but when you are taking on something you have not done before or it is something which could throw up complications, try and build in a buffer or parameters which will allow you to charge more if unexpected issues crop up during the completion of the work. You do not want to lose money on a job but equally your client will not welcome you trying to charge extra if you haven’t warned them or areas that could complicate the process.

It is a fact that most disputes between clients and their professional advisers will arise over fees, and it is rare you will be told by the client that you have charged too little!

When setting up in practice it might seem an excellent way of generating regular income, cash flow and fee income by getting clients onto a retainer. Extreme care is needed to ensure that the letter of engagement is very carefully worded, so the client knows what is included, but most importantly for you, you know when you can approach the client for an additional fee without it being a surprise to the client. Also remember to build into the agreement periodic reviews of the service and the fee so you can increase your charges over time. You don’t want to find yourself in a position with a client where the work you have done is now many times what is was in the beginning but your fee hasn’t increased, either with time and inflation or the extra work!

It is helpful to know, if the potential client will tell you, what fees they are paying now and for what services, it is not uncommon for clients to forget essential points that may make a big difference, and if their current fees are unusually high, it is not beyond possibility that the client may be ‘high maintenance’ and demand a lot of your time.

Managing work in progress and client expectations

You might find it tempting in the early days to take on any work, be it work outside your comfort zone or too much to cope with in one go. Be prepared to either say to a client that you need to take further advice, or that you cannot complete the work within the clients’ expectation of time. A client will not easily forgive you if you give incorrect advice causing them increased tax bill or the loss or a valuable tax claim and you find yourself claiming on your Professional Indemnity Insurance.

Fitting in with the section in fees above, it is important to tell a client straight away when you realise that you will need to bring in a specialist for a query they raise with you or they are contemplating an unusual transaction. The fee for the job can negotiated along with the fees for the consultant. You can also manage and take charge of the whole process. It is a complement to you that your client thinks you know everything there is to know about tax, but our chosen vocation covers a vast area and we don’t know everything. You will not lose the respect of your client by telling them that a specialist is needed, but you will if you get it wrong.

Equally, if you fail to deliver on time, your reputation will suffer. The whole way through performing work for a client you need to manage the process and their expectations. Tell them that something unexpected has cropped up with another client, or that you are taking a holiday and you cannot get back to them for a few days or weeks. If their work isn’t urgent they will generally accept your situation, if it is urgent taking into account the clients own opinion as well as your own professional view, can you work around the situation, move a job that is less urgent or bring in a temporary qualified assistant?

This situation will crop up time and time again and it is how you manage it that is important.

Scope of Services

Deciding what service to offer is important. It will impact on the way you market your business, what facilities and resources you will need around you and how you manage your work.

If you plan to offer mainly personal tax return services you need to accept that the bulk of your work will be done in the core months May and January, with perhaps more than 75% of the work performed between September and January. This will have a big impact and not just on your finances but your family life too, such as when you can take holidays.


It seems almost mandatory now to have a website. Unless you are competent in web design you will need to pay someone to design it for you. You need to decide on how much information to include, and how much time you devote to keeping it up to date,so if you start off including topical tax issues and tax rates remember that you will need to keep up updating it and keep finding topical items to include. So be practical at the outset and set up something that you can manage, and as your practice grows you can expand it then. You might have time on your hands in the beginning, but that won’t last, or it shouldn’t do! Be practical, most clients will probably learn about your practice via word of mouth, and not because they found you on the internet, so aim to spend more time telling people about you than you do updating your website. Also remember the changes brought about by the Companies Act 2006, as the website of a limited Company will need to meet those requirements.

Managing cash flow, debt collecting, withholding services

You may have a large mortgage or other personal commitments and you will have suppliers to pay, such as your insurance broker, invoices for technical support or other software suppliers and maybe premises rent etc, so it is important that you invoice regularly and collect the fees promptly.

In the very beginning, if you are in the position of being able to plan your departure from paid employment, do try and create a ‘set up fund’ to tide you through the first six months. Given the lead time to win work, perform the required task and then for the client to take one, two or maybe three months to pay you, then it is not unrealistic to take a view that you’ll not receive any or much income for the first six months. So your fund will need to cover your own expenditure for that period as well your set up and running costs. If you do not have the time nor spare income to create this fund, then you’ll need to secure an overdraft or the like to see you through your first few months.

The type of work that you do will, to a certain extent, dictate when you invoice for work. If your work is predominantly personal tax return completion, then you may be comfortable in billing on completion of the return, as on the whole, the period between the commencement of the work and finalisation may be quite short, but if you take on project work or business tax the work may be spread over many months, so consider this when setting out your terms of the engagement and build in the opportunity to raise interim invoices.

Consider how much credit you want to allow your clients, it may be acceptable to set invoice payment dates as seven or fourteen days, but business clients will be used to setting invoices on a monthly basis, and getting them to agree to shorter debt periods will be difficult. This could mean that you are regularly chasing them for money and causing ill feeling. So, if you can, find out what cycle their accounts function works to, and if they have a cut off for invoice processing of say the fourth of every month, then try and invoice them in the period up to their cut off date, and you may find your account is paid four weeks earlier, than waiting until the end of the following month for payment.

Also consider offering a direct debit or standing facility, to allow your client to spread the fees over a period of time. The time period will depend upon the client or the fees, but it would be usual to offer monthly or quarterly payment plans. Do look carefully at how you offer these to clients so you do not fall foul of the Credit Licensing Regulations.

Client cash

It is not recommended that you hold client monies, but in some instances you may ask a client to pay for services before they are performed and in this situation it is recommended that you set out what the payment is expected to cover and set out intervals to update the client when you have charged time to the account. You do not want to surprise the client by announcing that you have used up all of the pre-paid monies, and seek a further advance. Better still, if you have asked for, say, £5,000 in advance of fees, agree that you will notify them when you have spent time and or disbursements to the value of, say, £1,000 then the next £1,000 and so on.