A payment clause does its job when it settles, in writing and before the work starts, what the client pays, when, how it's collected and what happens if it's late. The joint engagement letter guidance from ATT, CIOT, ACCA and AAT gives you a framework for interest, monthly instalments, late-information charges and fees on disengagement, and leaves most of the wording to you.
In this article
The short version
- Your covering letter should deal with fees and say when they fall due, with payment terms in writing.
- Business clients owe statutory interest on late fees without any clause; private clients need an agreed term.
- Late-information charges are recognised by the joint guidance, but the amount and wording are yours to draft.
- Monthly instalments create a VAT tax point each month at the earlier of payment and the due date.
- Setting a tax refund against fees needs the client's written agreement, ideally in the engagement letter.
Where fees and payment terms go in the letter
Your engagement letter usually has three parts: a covering letter, standard terms and schedules of services. The joint guidance, updated in March 2026, puts fees in the covering letter, at least by cross-reference to your terms, so your client has enough to make an informed decision, and says the covering letter should state when fees fall due. CIOT and ATT add that payment terms should go to your client in writing.
A clause that gets fees paid answers five questions in plain words:
| Clause | What it should settle |
|---|---|
| Fee and basis | The amount or how it's worked out, and what's in scope |
| Due date | When each fee note or instalment is payable |
| Collection method | How it's paid, such as direct debit on the 1st of each month, and the notice before each collection |
| Late payment | Interest and any charges, and when they start |
| Late information | Any extra fee if records arrive after a stated date |
If your practice never holds client money and isn't likely to, the guidance says you can leave the client money paragraph out. Your own fees for agreed work, collected into your business account and clearly identifiable as fees, generally aren't client money, so for many small practices that paragraph can go.
Check the age of any template you're editing. ATT's engagement letters page carries the current guidance alongside schedules of services, including one for MTD for Income Tax updated in March 2026, and older downloads can carry wording that's since been superseded.
Interest and late-information charges
The joint guidance deals with interest in a single sentence: you may charge interest on late payment of fees, as long as you meet the requirements of the Consumer Credit Act. It doesn't suggest a rate.
For business clients you don't need a clause at all. The Late Payment of Commercial Debts (Interest) Act 1998 gives you statutory interest at 8% above the Bank of England base rate, which is 11.75% a year at the current 3.75% base rate, plus fixed compensation of £40 to £100 per invoice depending on its size. You can agree a different rate, but it has to be a substantial remedy for late payment, so take advice before writing in anything lower. For private clients who aren't in business, statutory interest doesn't apply, and an agreed term in your letter is the only route.
Writing interest into the letter and charging it are two different things. Many practices state it and never apply it, often because working out the figure and invoicing it feels like more trouble than it's worth. If you'd rather it happened without the arithmetic, Adfin's AI Customer Agents can apply statutory interest to a business client's overdue fee for you, after a grace period you choose, with a waiver for anyone you'd rather not charge; the payment link updates as the interest builds.
The joint guidance also recognises extra fees for records that arrive after the date you asked for them, or for a return prepared at short notice. It suggests no amount and no wording, so the clause is yours to draft. At the least, it should settle the date records are due, the fee or how it's calculated, whether it applies once per engagement or each time, and who tells the client it's been triggered.
Instalments, applications for payment and VAT
Monthly fees change your VAT rhythm as well as your cash. Where one VAT invoice covers several payments over up to a year, and two or more instalments are due, the tax point for each is the earlier of the date you receive it and the date it falls due. On a monthly arrangement you have a tax point every month whether or not the money arrives, so agree the mechanics with your VAT adviser before moving clients across.
Where you supply services continuously, the guidance allows you to send an application for payment instead of a tax invoice, and says it should state that it isn't a tax invoice. That line is easy to lose in a template edit, so check it's still there.
The guidance also asks you to confirm the payment method with your client. Naming direct debit in the clause, with the collection date and the notice your client gets, means a monthly fee arrives without anyone deciding to send it. One mandate can also collect amounts that change, such as a year-end balancing payment, provided your client gets advance notice.
Refunds, guarantors and disengagement
A few provisions cover money that reaches you some other way, or at the end of the relationship:
- Tax refunds set against fees need your client's written agreement and authorisation. CIOT and ATT say you may not settle outstanding fees from client funds without prior written approval, so put it in the letter before any refund exists.
- A third party guaranteeing a client's fees needs a separate agreement, made before the engagement and setting out the payment terms.
- Money on account before work starts is permitted at a reasonable level, with the refund terms written into the letter.
- A disengagement letter should cover outstanding fees alongside the services you provided, outstanding matters and upcoming deadlines. Putting the fee in the letter itself gives you a dated record of what's owed.
CIOT and ATT also allow you to tell a client you'll stop acting unless payment arrives within a reasonable, stated period, as long as you give reasonable notice. Ending the engagement doesn't cancel the debt, and any interest keeps running.
Common questions
What does the joint engagement letter guidance say about interest on fees? That you may charge interest on late payment of fees, provided you meet the requirements of the Consumer Credit Act. It sets no rate.
Do I need an interest clause to charge business clients interest? No. Statutory interest at 8% above base rate, currently 11.75% a year, and fixed compensation apply to late business payments whether or not your letter mentions them.
When is the VAT tax point on monthly fees? Where one VAT invoice covers two or more instalments over up to a year, each tax point is the earlier of payment and the due date, so check your arrangement with your VAT adviser.
Should the engagement letter name the payment method? It helps. Naming direct debit, with the collection date and the notice your client gets, means a monthly fee arrives without anyone deciding to send it.
Can I take a client's tax refund against unpaid fees? Only with the client's written agreement and authorisation, ideally given in the engagement letter before any refund exists.
What should a disengagement letter say about fees? It should state the fees outstanding, alongside the services provided, any outstanding matters and upcoming deadlines, so you have a dated record of what's owed.
Sources
- ATT - Engagement letters (joint ATT, CIOT, ACCA and AAT guidance) (accurate as of October 2026) https://www.att.org.uk/engagement-letters
- CIOT - Professional Rules and Practice Guidelines (accurate as of October 2026) https://www.tax.org.uk/professional-rules-and-practice-guidelines
- GOV.UK - Late commercial payments: charging interest and debt recovery (accurate as of October 2026) https://www.gov.uk/late-commercial-payments-interest-debt-recovery
- Bank of England - The interest rate (Bank Rate) (accurate as of October 2026) https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate
- Adfin - Credit control (accurate as of October 2026) https://www.adfin.com/credit-control
