Are legal and professional fees tax deductible?

Fees related to a trade are often allowable but it depends on the nature of the fees. Generally, fees related to the purchase or sale of property/assets and to do with raising equity finance are disallowed for tax purposes.

“Capital” expenditure: not deductible

Legal and professional fees are “capital” if they relate to an asset’s:

  • acquisition
  • improvement
  • elimination

And the asset is of an enduring nature and will yield benefits to the business for a number of years in the future.

For example, property, computer/office equipment, fixtures and fittings, licences (eg FCA) and other assets are all capital items. So legal and professional fees incurred in relation to these are also of a capital nature.

Fees related to leasing a property/asset, raising shares and share options are also capital.

Therefore, these kinds of fees would all be  disallowed for tax purposes.

Fees to arrange loans are generally also capital however incidental costs of loan finance are allowable.

Although fees for intangible assets are disallowed initially, there may be an amortisation expense that is allowable, for example when licences or IPR are written off over their useful lives.

“Revenue” expenditure: are deductible

If fees don’t relate to capital then they can normally be deducted if they relate to the trade.

So fees for a non-business purpose wouldn’t be allowed.

Examples of allowable legal/professional fees include:

  • advice on employment issues
  • terms and conditions for a website
  • accountancy fees to prepare accounts
  • lease renewal fees
  • taking a debtor to court

By Mohammed Haque

Mohammed is a chartered accountant (ICAEW) with many years of experience in dealing with complex audit, accounting and tax matters.