Legal and professional fees

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Legal and professional fees
  • Overview
  • Risk management
  • Costs relating to capital structure
  • Company administration costs
  • Acquisition or disposal of assets
  • Expenditure in connection with financing
  • Tax and accountancy fees
  • Tax investigation fee insurance (TIFI)
  • Renewals of leases
  • Retainer fees
  • Further reading


Legal and professional fees often make up a significant proportion of the expenditure of a business. They require detailed analysis for the purpose of preparing tax computations because there are invariably amounts which are not allowable as a trading deduction or for which relief is deferred until a later period (ie if the trader makes general provisions).

As such, there is very little by way of legislation that specifically decides whether expenses are allowable or not, and so instead practitioners generally turn to case law and HMRC guidance. These tend to rely on determining whether items are capital, or wholly and exclusively incurred in the course of trade.

Legal and professional fees will not be allowable under general principles either because they are capital in nature, or because they are not incurred wholly and exclusively for the purpose of the trade. These two principles will account for the majority of instances where legal and professional fees are disallowed as seen below.

CTA 2009, ss 53–54

However, legal and professional fees may be disallowed by other specific statutory provisions. This will tend to be the case where the legal fees have been incurred in connection with a disallowed cost. Likewise, where legal and professional fees have been incurred in connection with expenditure that is specifically allowed, it is likely to be an allowable deduction.

This guidance note summarises the tax treatment suggested by HMRC of certain types of expenditure, mainly based on commentary in the Business Income Manual. There is also some commentary on disclosure and good work practice.

Risk management

The question of whether or not legal and professional fees are allowable is often not straightforward. As the amounts involved can be significant, some or all of the following actions may be appropriate:

    More on Trading company computations: