This helpsheet has been issued by ICAEW’s Technical Advisory Service to help ICAEW members understand what information they need to provide to (potential) clients about fees and offers practical suggestions for dealing with a request for fee breakdown information.

It does not offer exhaustive advice regarding any requirements in respect of fees for regulated activities (for example, licenced insolvency practitioners will also need to consider SIP 9).

Members may also wish to refer to the following related helpsheets and guidance:

• Engagement letters and privacy notices
• What if you have not issued an engagement letter?
• ICAEW Code of Ethics

Section 330 of the ICAEW Code of Ethics addresses fees and other types of remuneration. Specifically, paragraph 330.4 states:

A professional accountant shall explain the basis on which fees will be calculated and provide an estimated initial fee where applicable. A professional accountant shall give the client this information at the earliest opportunity.

Paragraph 330.5 goes onto say:

A professional accountant shall provide fee quotes or details of the basis of fees in writing, either before the beginning of the engagement, or as soon as possible after the start of the engagement. This information would normally be provided in the engagement letter. If there is no engagement letter, then the professional accountant shall provide a specific document containing these details.

Firms must therefore ensure that fee arrangements are confirmed in writing with a client. This will normally form part of the engagement letter. Further guidance on engagement letters is available in the helpsheet Engagement letters and privacy notices.

Basis of fees

Fees are a commercial decision and a firm may quote whatever fee is determined to be appropriate. Fees may however be determined by reference to; the seniority and professional expertise of the individuals performing the work; time spent; the degree of risk and responsibility of the work; the nature of the client’s business, the complexity of its operation and the work to be performed; the priority and importance of the work to the client; expenses property incurred.

Many firms keep a record of the time spent by various members of staff on the work undertaken. This may or may not be the basis on which the fees are charged. Many firms keep these records in computerised format and/or allocate specific charge out rates per unit of time which when added up give an indication of the cost of the work and potential fee. It must be recognised that these are only management tools to assist in deciding the level of fees, to base future quotations and estimates for similar work or to compare to quotations and estimates made to see how well the firm is performing. Time records alone are not a justification for a particular fee. Rather it is the necessary additional professional work undertaken to meet the client’s supplementary requirements that justifies the extra fee.

Using estimates or quotes

Where a firm provides an estimate or quote, it should make it clear that it is not a fixed fee (unless this is the case).

Fixed fees

If a firm sets a fixed fee, it will be expected to honour it. A firm must be clear as the extent of the work that is covered by a fixed fee – it is best to document this in a written communication to the client. Where an additional fee has been rendered for work the firm believes is not covered by a fixed fee, this should be made clear.

Standing orders and direct debits

Payments by standing order or direct debits are becoming increasingly popular. They can help a client to spread the cost of their accounting needs. However they may also raise an expectation in the client that the payments on account will cover the entire cost of the firm’s services (even though this may not actually be the case). A firm should therefore be clear as to the terms of such payments.

If the payments are intended to cover all work undertaken, the firm should nevertheless be prepared to identify and evidence the work completed for the fees paid. Firms would not automatically have to provide a fee breakdown (like the example at the end of this helpsheet), however, it is useful to provide a regular (say annual) summary of the client’s account.

If the payments are made with the anticipation of spreading the financial burden rather than the intention to cover all work undertaken, the firm should be prepared to provide the client with a breakdown on request. Where a misunderstanding has arisen, or there is a dispute as to what the payments have covered, a firm should provide (in addition to details of the fees charged), a reconciliation of the fees to the amounts paid and any shortfall or overpayment.

When time estimates or quotes are exceeded

Generally an estimate does not amount to an offer and is not legally binding although a quote may form part of a contract and therefore be legally binding.

Where it becomes apparent that a quote or estimate will be exceeded, the firm should inform the client in advance, try to give a fresh estimate of additional costs and seek consent to continue. Where the firm issues a fee in excess of the previous quote or estimate, paragraph R330.10 of the ICAEW Code of Ethics requires an explanation for the excess, and how the excess has been calculated to be provided. The firm should be prepared to resolve any dispute which arises.

Paragraph 330.9 of the ICAEW Code of Ethics states that:

If a client requests a fee breakdown then the professional accountant shall provide one. The breakdown shall contain enough detail for the client to understand how the fee has been calculated.

This information should be provided free of charge.

Reasons why clients seek breakdown information

There are a number of reasons why clients ask you to provide them with details of your fee accounts. These may include:

• Fees that have exceeded an initial estimate or indication;
• The client believes they are being charged twice for the same work where, for example, they recently paid an invoice for ‘accounts preparation’ and later receive an invoice which includes the item ‘finalising accounts’ relating to the same accounting period;
• The client wants a basis on which to open a negotiation on the outstanding invoice.

Whatever the client’s motivation, a firm should try not to adopt a defensive attitude when they receive such requests.

What is 'enough detail'

What is 'enough detail' will vary depending upon the nature of the task(s) being billed, the basis on which the firm determines its charges and the agreement with the client. The firm has to assess objectively how detailed the breakdown should be. As a minimum it should normally include:

• A description of the work completed
• An indication of the length of time spent by different levels of staff, and
• Details of any specific reasons which resulted in more time or expense than expected or estimated, preferably with an indication of the additional charge resulting.

Other considerations

Running off a listing of time for the relevant period from a computerised timesheet system may be useful to clients but firms should consider how and whether the firm uses the information to determine their fees and whether the information will be understandable by the client before considering this approach. Generally this will not give sufficient information or explanation, particularly of a cost overrun, to provide an adequate fee breakdown on its own.

Firms often write off small amounts of time to keep costs down for clients or because they are unwilling to charge clients for extra work arising from, for example, mistakes made by a third party (HMRC, Companies House, etc.). It is better to inform the client, ideally in the fee note or otherwise in a fee breakdown, of the concessions made than to leave this as a negotiation point at a later stage when it may seem less credible to the client.

Fee breakdown requests for settled accounts

ICAEW will not normally request that a firm supplies a breakdown of fee notes already paid by a client (unless paid under protest at the time). A firm may, however, consider the wisdom of providing such a breakdown if it believes it will be helpful to a client to clarify matters and encourage early settlement of other outstanding amounts.

Example fee breakdown 

A suitable breakdown could be as follows: 

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Ethics Advisory Service on +44 (0)1908 248 250 or via webchat.