Claiming tax relief for accountancy fees

In this post we're going to discuss the circumstances when you can claim tax relief for accountancy fees.

tax relief for accountancy fees

You can usually claim a tax deduction for the following accountancy fees:

  • Accounts preparation
  • Submitting tax computations and accounts to HMRC
  • Agreeing tax liabilities with HMRC

This is in line with HMRC's standard practice which is detailed in their internal guidance.

What is not allowable?

Accountancy fees which have not been not incurred exclusively for business purposes would not be allowable. So for example:

  • Fees for preparing capital gains computations. For more details of allowable expenses for capital gains tax purposes see here
  • The cost of preparing a personal tax return or tax computation for an individual or partner of a partnership. HMRC usually allow additional personal costs where apart from computing the tax liability on trading profits, the costs are modest. This can be a problem area where this cost is met by your company as we have discussed previously.

What about fees for handling an HMRC enquiry?

It's possible to claim tax relief on accountancy fees relating to an HMRC enquiry. However these would only be allowable when an enquiry results in no adjustment to profits. Additionally, any fees incurred handling an HMRC enquiry where there is an adjustment to profits which are not as a result of negligent or fraudulent conduct or careless behaviour are also allowable.

If you incur fees on an HMRC enquiry which uncovers errors as a result of your carelessness or wrongdoing these are not allowable. This is stipulated in HMRC's guidance  here.

Unfortunately, legal fees are not tax deductible even where they are incurred as a result of a successful appeal against HMRC.

What about fee protection insurance?

Generally speaking, those premiums paid to insure against the professional costs of an enquiry are only allowable if the professional costs themselves are tax deductible.

If the policy entitles the holder to claim for the costs of negotiating additional tax liabilities resulting from careless or deliberate inaccuracies then the premiums paid on the policy are not allowable.

Many policies do not entitle claims for negotiating additional liabilities resulting from careless or deliberate behaviour meaning the premiums are potentially allowable.

Can you claim VAT on accountancy fees?

According to their internal guidance HMRC's policy is to allow VAT on a sole trader or partnership's accountancy fees. The only exception is where fees clearly do not relate to the VAT registered business. This concessionary practice is to avoid disputes over small amounts of tax.

However in  a landmark tax case a partnership was not allowed to deduct VAT on the proportion of its tax advisers' fees that related to the preparation of partners' personal tax returns and their personal tax calculations and payments. The VAT in this case was fairly substantial so it perhaps not surprising the partnership lost their case.

Therefore in order to avoid an unexpected Income Tax or VAT bill it would be sensible to ask your accountant to split your fee.  It should clearly indicate that which relates to personal tax and that which relates to activity in running your business.

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

Alternatively, please feel free to complete our Business Questionnaire here.

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