Claiming for personal tax return fees
If you’re a sole trader partnership or limited company, then you can usually claim a tax deduction for the cost of an accountant preparing your business accounts. Unfortunately, claiming for personal tax return fees is less straight-forward.
So what is HMRC's view when it comes to claiming for personal tax return fees?
Sole trader: claiming for personal tax return fees
If you were to look in HMRC’s manuals you’d see that their view is that the cost of accounts preparation is tax deductible but the cost of calculating any tax liability is NOT allowable.
So does this mean that you need to apportion the cost between accounts preparation, completing the personal tax return and preparing tax calculations?
Following the case of Smith’s Potato Estates Ltd v Bolland it has been accepted by HMRC that it is very difficult in practice, to apportion the cost between preparing the accounts and calculating the tax liability.
Therefore, by concession HMRC will allow a deduction for fees that relate to calculating the tax liability.
HMRC also realise that the additional cost of preparing a tax return for a ‘small’ sole trader are likely to be modest, so again these are allowed by concession.
However, HMRC may take a different view, if a sole trader has other sources of income (or a capital gain) and the return is more complex than just including any profits from the taxpayer's sole trader business.
So long as the tax return is straight-forward, any fee for completing a sole trader’s tax return should be a tax-deductible expense.
Director: claiming for personal tax return fees
The cost of preparing a director's personal tax return is not the company’s liability - it is the director’s personal cost.
So if the company pays the cost of preparing the director’s personal tax return then you may want to consider treating this as drawings – rather than just an addition to the company’s overall accountancy fees.
Alternatively, if the fee for preparing the director’s tax return is included in the company’s total accountancy fees and a deduction is allowed for corporation tax (often the case where the accountant charges an overall fee for the company which includes the preparation of the director’s personal tax return), then HMRC would expect this cost to be disclosed on the form P11D as a benefit in kind for the relevant director.
What about a partnership claiming personal tax return fees?
The position is similar to that of a company director, so the most appropriate tax treatment would be to add-back the cost of preparing the partner’s personal tax return to the partnership’s profits.
What’s the VAT position?
HMRC are unlikely to allow a VAT input deduction relating to the cost of either a director’s or partner’s personal tax return fees so it’s wise not to claim the proportion of the VAT relating to this fee.
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