Do engagement letters need renewing every year

Q: How might this work for one client?

Illustration only. A sole trader signed a letter in 2019 covering annual accounts and the tax return "for each year until terminated", with terms of business dated 2019. In 2026 the firm finds that the client now has MTD quarterly updates, sold a residential property in the year, and is billed monthly by direct debit. The 2019 letter still binds both sides for the annual accounts and return. It does not cover the quarterly updates or the 60 day property return, and the monthly billing has never been agreed in writing. The firm sends the current terms of business, new schedules for MTD and the property return, and a fee schedule, and asks the client to sign. It keeps a copy of what it sent and the date, and does not start the new services until the client has agreed.

No. Neither the law nor the ICAEW rules require a fresh engagement letter every year, and a properly agreed letter drafted for recurring work continues to govern the engagement until it is replaced or ended. ICAEW does recommend reviewing letters regularly, ideally each year or whenever the scope of work changes, and reissuing them, signed by the client, whenever services, fees, the law or the client’s circumstances change.

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Is there a rule that engagement letters must be reissued annually?

There is no general requirement. ICAEW’s helpsheet on not issuing an engagement letter states that engagement letters are not required in all cases, although ICAEW recommends always considering one, and that a letter is compulsory for audit work. What the professional rules do require is that certain information is given in writing:

Paragraph R330.5 of the ICAEW Code of Ethics requires fee quotes or the basis of fees in writing, before the engagement begins or as soon as possible afterwards, normally in the engagement letter.
ICAEW Disciplinary Bye law 7 requires firms to make all new clients aware in writing of the principal to contact about complaints and of their right to complain to ICAEW.

Neither requirement resets each year. Both are met for a continuing client by a letter that is still accurate.

The audit standard takes the same approach. ISA (UK) 210 paragraph 13 requires the auditor, on recurring audits, to assess whether circumstances require the terms to be revised and whether the entity needs reminding of the existing terms. Paragraph A30 says the auditor may decide not to send a new letter each period.

How do continuing terms remain binding?

An engagement letter is a contract. A letter that is written to cover a continuing service, such as preparing each year’s accounts and tax returns until either party ends the arrangement, remains in force from year to year without being reissued. Three features make that work:

Drafting for recurring work. The letter should say that it applies to each period until replaced or terminated, not just to a named year. ISA (UK) 210 notes that its example audit letter is drafted for a single period and would need adapting to apply to recurring audits; the same point applies to any template.
Clear evidence of agreement. ICAEW warns firms not to assume terms are agreed simply because a letter has been issued: an unsigned or partly updated letter offers limited protection in a dispute.
Dated terms of business. ICAEW’s model engagement letter package provides for dating the terms of business so it is clear which version applied, because terms may be updated from time to time.

A letter written years ago that names a single tax year, or refers to services the firm no longer provides, is weak evidence of what was agreed for later years even if the client has kept instructing the firm.

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When does a letter need updating?

ISA (UK) 210 paragraph A30 lists factors that may make it appropriate to revise the terms or remind the client of them. They work as a checklist for any engagement:

signs that the client misunderstands the scope of the work;
revised or special terms;
a recent change of senior management or a significant change in ownership;
a significant change in the nature or size of the business;
a change in legal or regulatory requirements;
a change in the financial reporting framework or other reporting requirements.

ICAEW’s Technical Advisory Service adds new regulatory requirements, additional services and the adoption of new digital tools as triggers for updating the terms. Recent examples show how often this happens. ICAEW’s engagement letter helpsheet added schedules for acting as an Authorised Corporate Service Provider in December 2025, and in its full review of 10 March 2026 added schedules for capital gains tax 60 day returns, Making Tax Digital for Income Tax and agreed upon procedures, and updated the terms of business on the use of AI and limiting liability. A client who now needs any of those services has a scope the old letter does not cover. For MTD in particular, see engagement letters for MTD Income Tax.

Changes to who signs for the client, such as a new board, are another trigger; see who should sign a company’s engagement letter.

Does a fee change need a new letter?

Not necessarily a complete new letter, but it must be in writing. R330.5 requires the basis of fees in writing, and R330.4B.2 requires an explanation of the reason for, and calculation of, any fee above a previous quote or estimate. Many practices issue an annual fee letter or revised fee schedule that refers back to the existing terms. Whether that is enough depends on what the existing terms say about changing fees and, for private clients, on consumer law.

For consumer clients, section 50 of the Consumer Rights Act 2015 treats information given under the Consumer Contracts Regulations 2013, which includes the price, as a term of the contract, and section 50(4) says a change to that information is not effective unless expressly agreed between the consumer and the trader. A price rise for a private client is therefore safest with express agreement. The wider question of variation clauses is covered in changing terms of business, and fee rises in raising fees with existing clients.

What if a client does not sign the updated letter?

ICAEW’s guidance is to ask clients to sign and return updated letters, follow up if they are slow, and keep a record of the version provided. Until the client agrees, the safest assumption is that the previous signed terms still govern the work they covered, and that new services have no agreed terms.

Where a client will not agree terms the firm needs, for example for a new regulated service or a revised fee, the firm can decline the new work or end the relationship. If it ends the relationship it should do so in writing with a disengagement letter that sets out the effective date and any outstanding deadlines; see disengagement letters.

How should a practice run the annual review?

A light annual process catches most problems without reissuing every letter:

Keep a register showing, for each client, the date and version of the signed letter and the schedules agreed.
At each year’s fee review, compare the services actually delivered with the schedules signed.
Check the client against the trigger list: new services, changed ownership or management, new legal duties.
Reissue in full where the terms of business have changed materially; otherwise add or withdraw schedules and confirm the fee in writing. The modular approach is explained in service schedules in engagement letters.
Chase signatures and record when each update was sent and returned.

How might this work for one client?

Illustration only. A sole trader signed a letter in 2019 covering annual accounts and the tax return “for each year until terminated”, with terms of business dated 2019. In 2026 the firm finds that the client now has MTD quarterly updates, sold a residential property in the year, and is billed monthly by direct debit.

The 2019 letter still binds both sides for the annual accounts and return. It does not cover the quarterly updates or the 60 day property return, and the monthly billing has never been agreed in writing. The firm sends the current terms of business, new schedules for MTD and the property return, and a fee schedule, and asks the client to sign. It keeps a copy of what it sent and the date, and does not start the new services until the client has agreed.

What mistakes do firms make?

Reissuing identical letters every year to every client, which costs time and adds nothing, while missing the clients whose scope has actually changed.
Using a letter that names a single year for a recurring engagement.
Treating an emailed update as agreed without any reply from the client.
Changing fees for private clients on notice alone when the law requires express agreement.
Starting new services before the schedule for them is signed.

For what the letter itself should contain, see engagement letters for accountants.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.