B2.449 Legal and professional fees
General approach on deductibility of legal and professional fees
In order to determine whether legal, accounting and other professional expenses are deductible or not, the underlying reason for which they are incurred must be considered carefully. They are not deductible as a category of expenditure in their own right. Generally speaking, those fees that are associated with capital items are unlikely to be deductible. Even if the fees do not relate to a capital item, it is still necessary to demonstrate that they are incurred wholly and exclusively for the purposes of the trade.
HMRC has confirmed that it is immaterial that the expenditure proves to be abortive and the original purpose for which the fees were incurred does not materialise.1. It is the underlying purpose that is relevant. To illustrate, in Great Boulder Proprietary Gold Mines Ltd2, legal costs of defending an action arising from the promotion of companies were held to be deductible to the extent that the promotion of companies formed part of the respondent's trade. However, legal fees incurred in acquiring the business premises were held to be capital and hence not deductible.
Categories of legal and professional fees
Ordinary annual legal and professional fees
Cost incurred on ordinary annual expenditure, for example in connection with the keeping of the company's share register, the printing of annual accounts and the staging of the shareholder AGM will normally be deductible as trading expenses3. It is usual practice for standard recurring legal, accounting and tax compliance
To continue reading
View the latest version of this document, as well as thousands of others like it, sign in to TolleyLibrary or register for a free trial