Subcontracting work to freelance accountants

When a practice passes work to a freelance accountant it normally keeps responsibility to the client, so the freelancer’s mistakes, data breaches and missed suspicions become the firm’s problem. The firm needs a written agreement covering money laundering compliance, confidentiality and data protection, insurance, review and supervision, and it should check the freelancer’s tax status rather than assume it. ICAEW’s subcontracting helpsheets and outline contract set out what to cover.

Who is the client when you subcontract work?

ICAEW describes two common arrangements. In the first, the firm keeps responsibility for the client and passes the subcontractor’s work on as its own; the firm is then the subcontractor’s client. In the second, the subcontractor provides the service directly to the firm’s client, and that client becomes the subcontractor’s client for that service. The second arrangement can affect the firm’s goodwill, so ICAEW suggests clauses protecting the client relationship, and its outline contract includes an agreement by the subcontractor not to accept professional work from the firm’s clients.

Whichever model applies, ICAEW stresses that both parties owe a duty of care to each other and potentially to the client. This page deals mainly with the first model, which is how most practices use freelancers for peak workload.

Does the freelancer need a practising certificate and AML supervision?

Under ICAEW’s statement on members engaging in public practice, a practising certificate is not required where the member acts as a self employed consultant or subcontractor to a practitioner that takes responsibility for their work and the member is not held out as a principal. A certificate is likely to be needed if the freelancer provides a specialist service that the firm passes on, or provides services directly to the firm’s clients, because the freelancer is then acting as a principal. ICAEW members can check the wider rules in ICAEW practising certificates.

For money laundering supervision, ICAEW says a freelancer does not need separate supervision only if all three conditions are met:

• all services are provided to the supervised firm, not directly to its clients;
• the freelancer is included in the firm’s anti money laundering procedures, reporting and training; and
• a contract with the firm confirms that every aspect of the relationship meets the AML requirements.

A freelancer who also has clients of their own needs supervision for that business. The supervision framework is explained in AML supervision for accountants.

Which money laundering duties stay with the firm?

ICAEW says that from the firm’s side the subcontractor acts as a quasi employee and all responsibility for complying with the regulations on the subcontracted work stays with the firm. In practice that means:

• Training. Regulation 24 of the Money Laundering Regulations 2017 requires appropriate measures to make relevant employees, and agents the business uses whose work is relevant to compliance, aware of the law and regularly trained, and requires a written record of that training. ICAEW says the firm must provide AML training to the subcontractor, though it may rely on evidence of training the subcontractor has already done. See AML training.
• Screening. ICAEW says the subcontractor should be included in the firm’s employee screening procedures, which assess skills, knowledge, conduct and integrity.
• Reporting. The contract should require the freelancer to report suspicions to the firm’s money laundering reporting officer.

How should confidentiality and data protection be handled?

The freelancer must keep client information confidential to the same standard as the firm, and ICAEW’s outline contract asks for a written confidentiality undertaking and agreement to uphold the ICAEW Code of Ethics. The duty itself is explained in confidentiality and when accountants can disclose.

The data protection role must be decided case by case. ICAEW’s view is that in most situations a subcontractor will be a controller, but that an individual may be a processor where they do not need a practising certificate, are covered by the firm’s insurance, the firm takes responsibility for their work and they work only for other accountancy firms, reporting suspicions to those firms’ officers. If the freelancer is a processor, Article 28 of the UK GDPR requires a contract that, among other things, limits processing to the firm’s documented instructions, binds those processing the data to confidentiality, requires security measures, prevents use of a further processor without written authorisation and requires the data to be deleted or returned at the end. If the freelancer is a controller, ICAEW suggests saying so in the contract for the avoidance of doubt.

Practical controls do more than clauses: give the freelancer access through the firm’s own systems, prohibit copies on personal devices and collect or wipe data when the assignment ends.

What should the written agreement contain?

ICAEW’s outline contract between a firm and a subcontractor covers:

1. the parties and the purpose of the contract;
2. AML compliance, including that the subcontractor will not contract directly with the underlying client and will report suspicions to the firm’s officer;
3. data protection status and any processor clauses;
4. the subcontractor’s duties: upholding the Code of Ethics, regular declarations on confidentiality, independence, fit and proper status and CPD, any restriction on direct client contact, use of office facilities, compliance with the firm’s procedures on working papers, review and security of records, and not accepting work from the firm’s clients;
5. the firm’s undertakings: insurance cover with the subcontractor’s name notified to insurers, notification of available work, and review and supervision arrangements;
6. the subcontractor’s responsibility for their own tax and National Insurance;
7. fees, expenses and payment terms; and
8. disciplinary procedures, signatures and dates.

How much supervision and review is needed?

Treat the freelancer’s work like that of a capable new employee until the firm has evidence of their standard: brief them on the firm’s procedures and working paper system, review their files before anything goes to the client or HMRC, and keep evidence of the review. Before engaging them, the firm should satisfy itself about their skill set, as ICAEW recommends; the competence principle is covered in taking on work outside your expertise. For reserved areas such as audit, insolvency, probate and investment business, ICAEW says the firm should confirm fit and proper status and adequate CPD and may treat the subcontractor like an employee for declarations of independence. Audit firms must also cover subcontracted resources in their ISQM (UK) 1 system.

Contact with HMRC needs thought under the mandatory tax adviser registration rules. HMRC’s manual at MTAR10150 says a subcontractor who contributes to work, or even attends meetings, under the authority and control of the principal adviser is not interacting with HMRC in its own right, so the engaging firm is treated as the one interacting. If the freelancer presents themselves as acting for the client, they must register. See tax adviser registration with HMRC.

What about professional indemnity insurance?

ICAEW says the firm should expect the subcontractor’s work to be covered by the firm’s own policy, but for the policy’s anti subrogation clause to extend to the subcontractor, the subcontractor’s name and status must be notified to the insurers. A freelancer relying on the firm’s cover should get written confirmation, and a member working without their own cover should tell the firm so. Without that notification an insurer that pays a claim could seek to recover it from the freelancer.

Is the freelancer really self employed?

ICAEW recommends that the firm obtains and documents its understanding of the subcontractor’s likely employment status for legal rights and tax. Where the freelancer works through their own limited company, the off payroll working rules may apply. HMRC’s guidance says the client normally decides the worker’s status and issues a status determination statement, but if the client is a small business outside the public sector the worker’s own company decides. A practice large enough to fall outside the small business definition therefore carries the status decision itself. The rules are explained in IR35 and the off payroll rules.

What does this look like in practice, and what goes wrong?

Illustration only. A four partner firm engages a freelance accountant, working through her own company, to prepare 60 sole trader accounts over the winter. The firm signs a contract based on ICAEW’s outline, notifies its insurer of her name, gives her AML training and a login to its practice software, and has a manager review every set of accounts before it goes to the client. HMRC correspondence goes out under the firm’s agent credentials. The firm records its status assessment and keeps a copy of the contract on file for its AML supervisor.

Recurring mistakes are:

• no written contract, or one that is silent on AML reporting and data protection role;
• failing to tell the insurer about the freelancer;
• letting the freelancer correspond with clients or HMRC in their own name;
• client data left on the freelancer’s own laptop after the assignment; and
• assuming self employed status without any documented assessment.

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

Related Accountapedia entries

• Employing your first member of staff in a practice
• Data protection for accountancy practices
• Data processing agreements with software providers
• Outsourcing accounting work offshore
• Choosing and registering with an AML supervisor

Related cover: What public liability insurance covers and Professional indemnity vs public liability.

Sources

• ICAEW: Using a subcontractor
• ICAEW: Appendix 3 outline contract between a firm and a subcontractor
• ICAEW: Acting as a subcontractor
• legislation.gov.uk: SI 2017/692, regulation 24
• legislation.gov.uk: SI 2017/692, regulation 21
• legislation.gov.uk: 28
• GOV.UK: Manual page MTAR10150
• GOV.UK: Understanding off payroll working ir35

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.