What the Code of Ethics requires
ICAEW's Code of Ethics says fee levels are a commercial matter and may reflect the seniority and expertise of the people doing the work, time spent, risk and responsibility, the nature of the client's business, the priority and importance of the work to the client, and expenses (330.4 A1). The accountant must explain the basis on which fees will be calculated and give an estimated initial fee where applicable (R330.4), in writing before or as soon as possible after the work starts (R330.5).
Quoting a fee lower than another accountant is not in itself unethical. The Code (330.3 A2) says a self-interest threat to professional competence and due care arises if the fee is so low that it might be difficult to do the work to the required standards. The safeguards it gives are adjusting the fee or the scope, or having the work reviewed (330.3 A4).
The pricing methods compared
| How the fee is set | What the practice needs | Handling extra work | |
|---|---|---|---|
| Fixed fee for an engagement | One amount for an agreed set of work, such as the year's accounts and tax return | A costing of the work, and a written scope. ACCA's factsheet 64 says a fixed fee should be based on a costing of the work | A variation clause in the engagement letter so extra work can be charged |
| Per-service fee | A separate fee for each service: accounts, VAT returns, payroll runs, Self Assessment | A price list and a record of which services each client takes | A new service is added at its own fee |
| Package | Several services bundled for a regular payment | A definition of each package and its limits, such as number of employees or transactions | Moving the client to another package, or charging for work outside it |
| Value pricing | Set by the importance of the work to the client, which the ICAEW Code lists among factors fees may reflect | A record of what was agreed and why, given in writing before work starts | A new written agreement for new work |
| Time-based | Time spent at rates for each grade of staff | Time recording, published rates and an estimate at the start (ICAEW Code R330.4) | Charged as it is done, with an explanation if the bill exceeds the estimate |
Scope changes and fee increases
A fixed or package fee depends on the scope being written down. ACCA's tax factsheet says an appropriate variation clause is essential for a fixed fee, and that an updated engagement letter should be agreed when even one aspect of the engagement changes, such as moving from a time-based fee to a fixed fee.
If a bill exceeds the previous quote or estimate, ICAEW's Code (R330.4B.2) requires the accountant to explain the reason and how the excess was calculated. A client who asks for a fee breakdown must be given one with enough detail to understand the calculation (R330.4B.1) (ICAEW Code of Ethics).
Contingent fees
A contingent fee depends on the outcome of the work. ICAEW's guidance on charging fees says contingent fees are prohibited for assurance engagements and in many cases for other services to assurance clients. For other work, the Code (330.4 A1 to A3) says they can threaten objectivity, and gives safeguards such as an independent review of the work and an advance written agreement on the basis of remuneration (ICAEW Code of Ethics). ACCA's factsheet 64 says contingent or success fees should be used with care in tax work.
Collecting fees by Direct Debit
Monthly collection by Direct Debit suits fixed and package fees. It needs a mandate from each client, a written schedule of what will be collected and when, and an engagement letter that states the payment terms. The fee basis still has to be confirmed in writing before the engagement starts (ICAEW guidance).
Questions
Can a practice keep commission from a referral?
Under ICAEW's Code (R330.5B), only with the client's explicit written consent, given in advance through an engagement letter clause or specific consent, or sought after the commission is received with full details of the amount, the payer and how it was calculated (ICAEW Code of Ethics).
What if a client disputes a fee?
ICAEW's Code (R330.4B.3) requires reasonable steps to try to resolve the dispute. An existing accountant may have a right of particular lien over records where fees are unpaid, and must still deal promptly with a reasonable request for transfer of records (R320.7C). See professional clearance.
In Accountin
Accountin's deadlines dashboard lists every deadline for each client with the person who looks after it, which gives the recurring work a fixed or package fee has to cover.
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