Are legal costs tax deductible?

Are legal costs tax deductible?

Starting a business may incur a number of legal costs, like drawing up a lease, agents or surveyor fees. There are a number of legal costs associated with owning a business which may include fees incurred during the acquisition of property or assets, or business advice from an accountant. Some legal fees are deductible from profits, while others will be treated as capital allowances.

Most expenses which are incurred are deductible as long as they are ‘wholly and exclusively’ for the business. If an expense is used for both business and private use, like a telephone bill, the bill must be apportioned so that only the business use is claimed for.

The legal costs involved with the buying of property or equipment are included in the asset’s purchase price and therefore, treated as capital allowances. The capital allowance rules will apply with allowances being reclaimed over the lifetime of the asset. The legal costs for any disputes with HMRC are not deductible, and this includes fines or penalties received. If a legal fee directly relates to the operation of a business, and is ordinary and necessary, it may be deducted as a business expense.

The fees which are incurred for the preparation and submission of company accounts are deductible as they are necessary for the business. The legal fees which are incurred when drawing up a new lease are not deductible as they refer to the capital of a business. Legal fees are a complex issue which is why professional advice should be sought.