In this brief article, we look at how professional fees, such as accountancy and legal expenses are treated for tax purposes.
All limited companies will incur some costs for professional services – typically for accountancy work, and possible for legal fees at some stage.
Not all professional fees are allowable against profits
In general, most professional fees are allowable business expenses, which can be offset against Corporation Tax, however there are some exceptions you should be aware of.
- You cannot claim against the company for the costs of completing your personal self assessment tax return, as this is a personal benefit. You will be taxed on this benefit (as a Benefit in Kind) should you do so. Many accountancy firms absorb the cost of the personal tax return into their annual fees, to get around this.
- The actual cost of company formation is not allowable against profits as it is deemed to be a ‘capital’ rather than a ‘revenue’ expense, however a company director can be reimbursed in full for absorbing this initial cost.
- You can claim for professional fees incurred prior to company formation, as long as they directly relate to the business carried on by the company once formed. Read our guide to reclaiming pre-formation expenses for more details.
- Fees relating to capital expenditure cannot be offset against the company’s profits, for example conveyancing fees for the purchase of a business property.
- There are also complex rules governing the reclamation of expenses for creating, and renewing leases on business property. You should contact your accountant if this may be relevant to your business.
When business expenses are said to be ‘not allowable’, this means they won’t be deducted from the company’s profits when calculating the Corporation Tax liability. This does not affect the reimbursement to a company director who may have paid for business expenses personally.