There are many different legal and professional fees with some being tax deductible and others not, so it can get quite difficult to understand what can be claimed.
If you have incurred legal fees on tax matters, these cannot usually be claimed for tax. This is because if you appeal against a tax assessment, it may not just be for the intentions of the business.
If the fees are related to capital (a long term expense) or non-trading items, including fees created from partnership agreements, or obtaining new capital assets, for example, these are not allowed.
Although, there are some exceptions to this as there are some fees relating to capital items that are allowed. These exceptions are:
- Costs associated with registering trademarks or patents,
- Incidental costs, such as legal fees, connected with obtaining loan finance by an unincorporated business
- Legal fees related to renewing a lease that is 50 years or less, defined as a short lease.
Fees that are directly linked to trading are allowed, and these include:
- Trade debt collection fees,
- Costs created from ending an onerous trading contract
- Fees connected with actions for a contract breach or the costs of a successful defence of a contract breach,
- Costs of defending a taxpayer’s title to fixed assets.
The costs of accounts preparation and accountancy fees are usually allowable. Also, other accountancy costs that are produced from a HMRC investigation are allowed, as long as they don’t include other fees such as penalties or extra tax.
Whether a legal or professional fee is tax deductible can be difficult to understand, but in summary, if it is a fee relating to capital or non-trading items, it is usually not allowable for tax and if it is a fee directly related to trading, then you are usually allowed to class it as tax deductible.
If you are in any doubt whether a legal or professional fee is tax deductible then please contact your accountant.
