Legal, accountancy and other professional fees are deductible when they are revenue costs incurred wholly and exclusively for the trade, such as preparing accounts, collecting routine advice or defending existing business rights. Fees linked to buying, improving or disposing of a capital asset, raising equity, changing the structure of the business or dealing with personal tax are not. The nature of the work the fee pays for decides the answer, not the type of adviser.

What is the general rule for professional fees?

HMRC’s Business Income Manual at BIM46405 says professional fees are not allowable if they are capital, or if they are excluded by statute, for example because they are not incurred wholly and exclusively for the purposes of the trade or because they are losses not connected with or arising out of the trade. The same principles apply to sole traders under ITTOIA 2005 and to companies under CTA 2009.

The fee takes its character from what it was spent on. BIM46400 puts it simply: fees connected with the acquisition, disposal or modification of a capital asset are themselves capital. Where the position is not clear cut, HMRC looks at the precise nature of the services and the purpose of the spending when it was incurred. It does not matter that the project later fails: under Pyrah v Annis and Co Ltd [1956] 37 TC 163 and ECC Quarries v Watkis [1975] 51 TC 153, abortive fees keep the character they would have had.

GOV.UK’s guidance for sole traders and partners says you can claim for hiring accountants, solicitors, surveyors and architects only for business reasons, and for professional indemnity insurance premiums. You cannot claim the legal costs of buying property and machinery, fines for breaking the law, or the cost of preparing and submitting your Self Assessment tax return.

Which fees are usually revenue?

  • Preparing accounts. BIM46450 says fees for preparing accounts for commercial reasons and many other accountancy services pass the wholly and exclusively test.
  • Agreeing the tax on trading profits. Strictly, these fees are not allowable, but HMRC has a longstanding practice of allowing normal recurring legal and accountancy costs of preparing accounts or agreeing the tax liability, approved in Smith’s Potato Estates Ltd v Bolland [1948] 30 TC 267 (BIM46450).
  • Protecting existing rights. BIM46415 says fees spent maintaining existing assets, trade rights or facilities are revenue, even where the asset is capital and even if the attempt fails, citing Southern v Borax Consolidated Ltd [1940] 23 TC 597.
  • Routine business advice. Fees for advice on day to day trading, given only for business reasons, fall within the GOV.UK list of allowable costs.
  • Rating appeals. BIM46455 says the costs of appeals against rating assessments on business premises may be allowed.

Which fees are capital?

BIM46415 says fees are capital when they are incurred on the acquisition, improvement or elimination of an identifiable capital asset, such as premises or plant, or of an intangible right of a capital nature. HMRC’s examples of capital assets include shares in another company, leases of business premises, leases of plant used as fixed assets, and licences that are capital in their own right.

Several common situations are covered by specific guidance.

  • Leases. Fees on renewing a short lease with the landlord’s consent are capital but usually small, so HMRC may allow them on de minimis grounds. HMRC will argue for capital treatment where the new lease runs, or can run, for more than about 50 years, or where a premium is payable. The costs of resisting eviction or obtaining a new lease against the landlord’s opposition are not deductible (BIM46420).
  • Equity finance. Fees for raising, repaying or rearranging share capital, including a company buying its own shares, are capital (BIM46425).
  • Business structure. Fees for forming, varying or dissolving a partnership, negotiating a merger, forming and registering a company or changing its status, and defending a shareholders’ winding up petition are generally capital (BIM46435).
  • Long term borrowing. Fees for raising or replacing long term finance are capital on general principles (BIM46430). For unincorporated businesses, section 58 ITTOIA 2005 then gives a specific deduction for incidental costs of obtaining loan finance, including legal fees for negotiating the loan and preparing the documents (BIM45815).
  • In house work. BIM46410 tells officers to disallow the salary costs of in house professionals who spend significant time on capital work such as buying and selling the business’s assets.

A fee that is capital cannot be deducted from trading profits, whatever the accounts show. For how capital spending is treated, see capital or revenue expenditure and capital allowances explained.

Can I claim accountancy fees for my tax return?

Only the business part. BIM46450 says the practice of allowing tax related fees does not extend to personal tax. The cost of completing a personal tax return or computing a capital gains tax liability is not allowable against trading profits, though HMRC accepts the extra personal cost will often be minimal where the individual’s affairs are simple. GOV.UK also lists the cost of preparing and submitting your Self Assessment return as something you cannot claim.

Are fees for an HMRC enquiry or tax appeal deductible?

HMRC’s Enquiry Manual at EM3981 sets out the practice, which replaced Statement of Practice SP16/91. Additional accountancy fees arising from an enquiry are allowable where the enquiry results in no addition to profits, or in an adjustment for the year of enquiry only that does not arise from careless or deliberate behaviour. They are not allowable where the enquiry reveals discrepancies and additional liabilities for that year or an earlier year as a result of careless or deliberate behaviour. For a continuing business the fees are deducted in the period incurred; for a business that has ceased, they can be allowed in the final accounts. For how enquiries end, see HMRC closure notices.

Appeals are treated differently. BIM46455 says expenses incurred directly on appeals to the Tribunal or the courts against income tax, corporation tax or capital gains tax assessments should be disallowed, following Allen v Farquharson Bros and Co [1932] 17 TC 59 and Smith’s Potato Estates. Fees in a VAT dispute may be allowed only where the issue is whether particular revenue supplies are liable to VAT, or the trader shows the returns were correct or wrong only through arithmetical error. The appeal route is explained in HMRC statutory review and the tax tribunal.

BIM46452 applies the same logic to insurance premiums against the cost of tax enquiries. Premiums are allowable only if the insured costs would themselves be allowable. Where a policy can pay for fees negotiating extra liabilities from careless or deliberate inaccuracies, HMRC’s view is that the premiums are not deductible and cannot be apportioned, even if no claim is made.

What about legal costs in disputes and disciplinary cases?

BIM46445 says the outcome of court proceedings does not decide whether the costs are deductible; HMRC looks at whether they are capital, fail the purpose test, or are a loss not connected with the trade. Three cases show the purpose test at work.

  • McKnight v Sheppard [1999] 71 TC 419. A stockbroker’s legal fees of over £200,000 defending Stock Exchange disciplinary charges were deductible because his sole purpose was to save his business, even though the fines themselves were not (BIM37965).
  • Spofforth and Prince v Golder [1945] 26 TC 310. Accountants’ costs of defending a partner against a criminal charge were disallowed from the issue of the summons, as the purpose became defending the partners personally (BIM37955).
  • Knight v Parry [1972] 48 TC 580. A solicitor’s costs of defending a civil action that could have ended his career had a dual purpose and were disallowed (BIM37960).

BIM37955 adds that a company defending a criminal charge may, on the facts, be protecting only its goodwill, but costs of defending individual directors are likely to have a non trade purpose. The treatment of the fines and damages themselves is covered in are fines and penalties tax deductible.

How might a year’s fees be treated?

Illustration only. A sole trader’s professional fees for a year might be analysed like this.

Fee Likely treatment Reference
Annual accounts and business tax computation Allowable BIM46450
Personal tax return and capital gains computation Disallowed BIM46450
Solicitor drafting standard customer terms Allowable GOV.UK, business reasons only
Solicitor on purchase of a workshop Capital BIM46415
Legal fees on a business loan Allowable under section 58 BIM45815
Fees for an abandoned purchase of new premises Capital, as if it had succeeded BIM46405
Tribunal appeal against an income tax assessment Disallowed BIM46455

What mistakes come up most often?

  • Deducting legal fees on buying premises, a lease premium or a business as an expense.
  • Including personal tax return fees in the business accounts.
  • Claiming abortive fees as revenue because the deal fell through.
  • Deducting enquiry fees where the enquiry found careless errors.
  • Claiming costs of company formation or partnership changes.

For the underlying test, see the wholly and exclusively rule.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.