If you incur a business expense, this will be deducted from business income to arrive at your business profits.
Some business expenses are not tax deductible which means that when calculating how much tax your business has to pay, these expenses are added back to profits.
Usually accountancy fees are tax deductible. This article looks at the few exceptions.
Unincorporated businesses: Sole Traders and Landlords
If you are a sole trader, or a landlord, you probably have an accountant to prepare your accounts and tax return.
Technically, the rules allow you to claim back the accountancy fees for preparing accounts only and not for preparing your tax return.
For a landlord, the accountancy fees for preparing the rental property accounts is an expense of the business. On the other hand, the cost of preparing the personal tax return is not.
Similarly, for a sole trader, the cost of preparing the business accounts are tax deductible, but not the cost of preparing your personal tax return.
However the good news is that HMRC have given a concession where the fees for preparing tax returns can be claimed back. This is because of the difficulty in splitting the accountancy fees and because generally the element relating to tax return preparation for most taxpayers is fairly modest.
Generally, accountancy fees incurred by a company will be tax deductible. There are some important exceptions though:
Directors Personal Tax Returns
A company can pay the accountancy fees for the directors’ tax returns. But if the company treats this as an expense of the company, it also becomes a benefit of employment and subject to Class 1 NIC. To avoid this, the payment, including any VAT element, should be treated as a loan to the director.
Any fees, accountancy or Companies House, incurred specifically on incorporating a company is not tax deductible.
Accountancy fees for setting up and registering with HMRC for PAYE, VAT etc are tax deductible.
Accountants fees to assist with HMRC enquiries are not tax deductible.
The fees would only be allowable if:
- if the enquiry did not uncover any errors or
- if the enquiry only uncovered errors that were not due to negligent/fraudulent conduct or careless/deliberate behaviour
If you have any queries on this, please get in touch, we are happy to help.