An accountancy practice can run as a sole practice, a partnership, a limited liability partnership (LLP) or a limited company, and the professional bodies allow all four. The choice changes who is personally liable, what goes on the public record and how profits are taxed. It also changes which professional body supervises the firm, because ICAEW, ACCA and the audit rules all look at who owns and controls the firm, not just who signs the work.

Which structures do accountancy practices actually use?

ICAEW’s guidance on starting a practice says most practitioners start as sole practitioners, first with no staff and then with staff, and may later become partners. It describes the partnership model as still popular, says corporate structures are increasingly common, and notes that the LLP model can improve risk management. Whichever structure is chosen, ICAEW members must notify ICAEW of the practice, including when setting up as a sole practitioner.

For an ICAEW member, engaging in public practice will usually require a practising certificate, professional indemnity insurance and coverage by Practice Assurance, whatever the structure. The steps for a new firm are covered in starting an accountancy practice.

How does personal liability differ between the structures?

  • Sole practice. There is no separate legal person. The practitioner is the business and is personally liable for its debts and claims.
  • Partnership. Section 9 of the Partnership Act 1890 makes every partner liable jointly with the other partners for the firm’s debts and obligations incurred while a partner. Gov.uk describes partners as personally sharing responsibility for losses and bills.
  • LLP. Section 1 of the Limited Liability Partnerships Act 2000 makes an LLP a body corporate with legal personality separate from its members. Gov.uk states that members are not personally liable for debts the business cannot pay. See LLPs explained.
  • Company. The company contracts with clients and owns the practice; shareholders’ liability is limited to their shares.

Limited liability protects personal assets from the firm’s trading debts, but it does not replace insurance. A negligence claim is usually made against the firm, and the firm’s professional indemnity insurance is what meets it. Practising members must still hold the insurance their body requires, described in professional indemnity insurance for accountants.

What does ICAEW require for each structure?

ICAEW’s principal byelaws define a member firm, and ICAEW’s annual return guidance sets the definition out by structure:

Structure Member firm if
Sole practice The sole practitioner is a member engaged in public practice
Partnership More than 50% of the rights to vote at partnership meetings on all, or substantially all, questions of substance are held by members
LLP The same more than 50% voting test as a partnership
Company 50% or more of the directors are members, and members hold more than 50% of the nominal value of the voting shares and more than 50% of the aggregate nominal value of voting and non voting shares

The test decides whether the firm itself is within ICAEW’s net. ICAEW’s practice structure guidance warns that a firm which is not a member firm will not be entitled to be covered by ICAEW’s Practice Assurance Standards or its money laundering supervision scheme. ICAEW’s Practice Assurance requirements are covered in ICAEW Practice Assurance.

The description “Chartered Accountants” brings a further rule. ICAEW requires any non member principals to be registered as ICAEW affiliates if the firm is regulated (audit, investment business, insolvency or legal services) or uses the description ICAEW Chartered Accountants. ICAEW points out that spouses are often shareholders or directors and are often not members, which can add cost.

Audit is stricter. In an audit registered firm, ICAEW’s guidance states that the majority of the voting rights, or the rights that allow control of overall policy or the constitution, must be held by individuals holding a UK audit qualification, by a UK registered audit firm, or by certain EEA auditors.

What do ACCA and AAT require?

ACCA’s anti money laundering guidance says ACCA can supervise a firm only if an ACCA practising certificate holder is part of its ownership, and supervises firms where ACCA certificate holders have combined majority control of more than 50%. ACCA automatically supervises sole practitioners who hold an ACCA practising certificate. Its example is a three partner firm where an ACCA member holds 40% and two ICAEW members hold 30% each: that firm falls to ICAEW. Where ownership is split equally between bodies, the bodies decide between them. More on this is in AML supervision for accountants.

AAT requires all self employed AAT members offering bookkeeping or accountancy services to hold an AAT licence, requires all licence holders to have professional indemnity insurance, and has a continuity of practice policy requiring cover so the practice can continue during long term absence or on cessation.

What extra planning does a sole practice need?

Continuity is the main weakness of a sole practice. ICAEW requires a sole practitioner who holds client money to appoint an alternate and notify ICAEW, and recommends that the alternate is a signatory to the client bank account. Otherwise an alternate is recommended rather than required. The alternate need not be a member, but cannot sign audit reports in the practitioner’s place.

How do tax and public filing differ?

In a partnership each partner pays tax on their share of the profits, and a nominated partner deals with the partnership return. LLP members are also taxed on their share of profits as in an ordinary partnership, but the LLP must send annual accounts and a confirmation statement to Companies House, so its figures are public. A company pays corporation tax and files its accounts and Company Tax Return, and profits reach the owners as salary or dividends. The trade offs are covered in sole trader or limited company, and LLPs that admit a corporate member or pay fixed shares to members should look at mixed member partnerships and salaried members rules.

What happens when the practice changes structure?

Changing structure creates a new legal entity, and HMRC treats it as one. HMRC’s guidance for tax agents says that when a business changes legal entity, for example from sole trader to limited company, it must create a new agent services account for the new entity, get authorisation from clients again, and write to the Agent Compliance Team to remove the old account. It must not try to move agent codes from the old entity, which HMRC says breaches the HMRC standard for agents and UK GDPR. New engagement letters will also be needed because the contracting party has changed.

How might the ownership tests work in practice?

Illustration only. Two ICAEW members set up a practice company with a non member spouse as a third director. The directors are two members out of three, which meets the 50% or more test. If the members hold 80% of the shares and the spouse 20%, the share tests are met and the company is a member firm. If the spouse instead holds 50% of the shares, the members hold only 50%, the “more than 50%” share tests fail, and the firm is not a member firm. If the firm wants to call itself Chartered Accountants, the spouse must also be registered as an ICAEW affiliate.

What mistakes come up most often?

  • Giving a spouse or family member enough shares to break the member firm test.
  • Using the description Chartered Accountants without registering non member principals as affiliates.
  • Assuming an LLP or company removes the need for professional indemnity insurance.
  • Incorporating an existing practice without a new agent services account and fresh client authorisations.
  • Admitting a non qualified partner to an audit firm without checking the audit control rules.

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

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.