If you are a self-employed individual or a small business owner in the U.K., you may wonder if you can claim your accountant fees as a tax deduction. The answer is yes, but only if the fees are related to your business activities and not your personal affairs.
According to HM Revenue and Customs (HMRC), you can deduct any costs “wholly and exclusively” for your trade or profession from your taxable income. This means that the fees must be necessary and relevant for your business and not for any other reason.
What Type of Fees are Tax Deductible?
When filing your taxes, you can always deduct fees that have to do with the following:
- Preparing and filing annual accounts and tax returns
- Bookkeeping and payroll services
- Advice on tax planning and compliance
- Auditing and assurance services
- Business valuation and due diligence
However, you cannot deduct the fees for:
- Personal tax returns and advice
- Estate planning and inheritance tax
- Divorce and separation settlements
- Investment and financial advice
- Legal disputes unrelated to your business
Note: If you use the same accountant for your business and personal affairs, you will have to apportion the fees into two categories and only claim tax deductions on the business portion. You should ask your accountant to provide a breakdown of their fees by service type to estimate the split.
How to Claim Your Accountant Fees as a Tax Deduction
You will need to include accountant fees as expenses on your self-assessment tax return to claim those fees as tax deductions. Therefore, you’ll have to keep records of your invoices and receipts from your accountant, as well as any correspondence that shows the nature and purpose of their services.
Accountant fees can be claimed as tax relief in the same tax year as you incur them. Alternatively, you can claim them the following year if they relate to a previous year’s accounts or tax returns.
For example, if you pay your accountant in January 2022 for preparing your 2020/21 accounts and tax returns, you can claim the fees on your 2020/21 or 2021/22 tax return.
Furthermore, the amount of tax relief you can claim from deducting your accountant fees depends on your marginal tax rate. For illustration, let’s assume you are a basic rate taxpayer paying 20% of your tax-deductible income to the government. You will save £20 in tax for every £100 of accountant fees that you deduct. If you are a higher rate taxpayer paying 40%, you will save £40 in tax for every £100 of accountant fees you deduct.
Do you need accounting advice on claiming tax deductibles and compartmentalising your personal and business accounts? Sloane Winckless are chartered accountants Ewell & Epsom businesses, and professionals have relied on for such services for 35 years with stellar results.
The Bottom Line
Accountant fees can be a significant expense for self-employed individuals and small business owners in the U.K. However, they can also provide valuable benefits such as time savings, reduced errors, and optimised tax efficiency. The caveats are you must ensure that the fees are related to your business activities and not your personal affairs and that you have sufficient evidence to support your claim.
