Most practices now price recurring compliance work such as accounts and tax returns on a fixed fee, and keep hourly rates for open ended or unpredictable work. Neither model is required by the professional rules, but both carry risks: fixed fees fail when the scope is vague or the fee is never reviewed, and hourly billing fails when the client cannot predict or understand the bill.

Do the professional rules say how accountants must charge?

No. ICAEW guidance on determining the basis of charging fees says the Code of Ethics does not specify a particular method for setting fees, and that the amount is a commercial matter between firm and client. What the Code does regulate is transparency and the threats a fee can create. Under the ICAEW Code of Ethics that applies from 1 July 2026:

  • R330.4 requires the firm to explain the basis on which fees will be calculated and give an estimated initial fee where applicable, at the earliest opportunity.
  • R330.5 requires fee quotes or the basis of fees in writing, before or as soon as possible after the engagement starts, normally in the engagement letter.
  • R330.7 prohibits misleading clients about the basis of fees for current or future work.
  • R330.4B.1 requires a fee breakdown, if the client asks for one, with enough detail to understand how the fee was calculated.
  • R330.4B.2 requires an explanation of the reason for, and calculation of, any fee above a previous quote or estimate.

Paragraph 330.4 A1 lists factors that may determine fee levels: 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 properly incurred. Time is one factor among several, not the default.

How does hourly charging work?

Staff record time against each job and the fee is built from hours multiplied by a charge out rate for each grade. An ICAEW Insights viewpoint notes that the traditional way of setting rates was in thirds: one third salary, one third overheads, one third profit. It argues that model is of limited use for firms whose costs are now weighted towards software and fewer, more senior staff, and that sole practitioners should base their own rate on a commercial salary rather than what they actually draw.

ICAEW’s fee information helpsheet makes a distinction worth keeping in mind: time records are management tools for deciding fees, quoting and checking performance. Having a timesheet does not mean the fee must equal the time recorded.

Estimates and quotes

The same helpsheet says an estimate generally does not amount to an offer and is not legally binding, while a quote may form part of the contract. If a firm gives an estimate it should say clearly that it is not a fixed fee. When it becomes clear an estimate will be exceeded, the firm should tell the client in advance, give a fresh estimate where it can, and ask for consent to continue.

How do fixed fees work?

A fixed fee is agreed in advance for a defined piece of work, often collected monthly. The fee information helpsheet says that if a firm sets a fixed fee it will be expected to honour it, and must be clear about the extent of the work covered, ideally in writing. If the firm bills extra for work it believes falls outside the fixed fee, it should make that clear.

The definition of scope is what makes fixed fees work. The ICAEW Insights viewpoint describes defining the inputs in the engagement letter, for example an analysed and reconciled bank account in the client’s software, and the outputs, so that anything else is plainly additional. Its suggested response to extra requests is “Yes, and that will cost”.

What are the risks of fixed fees?

Scope creep. ICAEW’s practice resource on fees and charge out rates describes a familiar pattern: the fee is agreed on the basis that the client will reconcile the bank or keep a fixed asset register, the client does not, and staff quietly do the work for the same fee. It recommends telling the client and offering a choice between doing it themselves, with the job rescheduled, or paying more, and ideally pricing that extra work when the fee is first agreed.

Fees that never move. An article hosted by ICAEW quotes Will Farnell of Farnell Clarke describing a client charged £150 a month in 2008 who, eight years later, had revenue of £1.6 million and 34 staff on the payroll but was still paying £150 a month. A fixed fee needs an annual review and a clause in the engagement letter allowing it.

Direct debit expectations. The fee information helpsheet warns that monthly standing orders can lead clients to assume the payments cover everything. The terms should say whether they do.

Underpricing. Paragraph 330.3 A2 of the Code says quoting lower than another accountant is not in itself unethical, but a fee so low that the work cannot be done properly creates a self interest threat to professional competence and due care. Safeguards include adjusting the fee or the scope.

What are the risks of hourly rates?

Disputes and complaints. ICAEW’s fees guidance says a lack of understanding of how fees were calculated regularly contributes to complaints to ICAEW about members. Open ended hourly billing is where that misunderstanding is most likely.

Write offs that nobody sees. The ICAEW fees and charge out rates resource points out that under recovery is a hidden cost, because time written off never appears in the profit and loss account. Its example is a practice raising £400,000 of fees from £470,000 of time, an 85% recovery rate, with £70,000 written off. It also advises against rounding fees down and against starting a job before all the information is in, because every pick up and put down costs time.

Penalising efficiency. If the fee equals hours, better software and better processes reduce income. That is one reason firms moving to cloud bookkeeping and Making Tax Digital have shifted towards fixed or packaged pricing, discussed in value pricing for accountancy services.

How does the same job look under each model?

Illustration only. A sole trader needs annual accounts and a Self Assessment return. Last year the job took 8 hours at an average rate of £90, so £720.

Approach What the client agrees What happens if records arrive in a mess
Hourly with estimate Estimate of £700 to £800, billed on time Firm must warn the client before exceeding the estimate and explain the excess on the bill
Fixed fee £750 for accounts and return from a reconciled bank feed Bookkeeping is outside scope and priced separately at an agreed rate, or the client tidies the records first
Fixed fee, vague scope £750 for “accounts and tax” Firm absorbs the extra hours or argues about scope after the event

The third row is the one that causes trouble, and it is a scope problem rather than a pricing model problem.

What mistakes should practices avoid?

  • Describing a figure as a quote when it was meant to be an estimate, or the other way round.
  • Fixed fees with no written definition of what the client must supply.
  • No annual review clause, so fees drift below cost.
  • Sending a bill above the estimate without the explanation R330.4B.2 requires.
  • Treating a breakdown request as hostile; ICAEW’s helpsheet says it should be provided free of charge and the firm should avoid a defensive attitude.
  • Letting a fee depend on the outcome of the work without considering the contingent fee rules on the contingent fees page.

Fee terms belong in the engagement letter, and the disclosure rules for commissions and referral payments are covered separately in fees, commissions and referrals.

Solar Protect runs fee protection schemes for accountancy and bookkeeping practices. See how our accountant schemes work or read fee protection schemes for accountants.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.