Legal and professional fees

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Legal and professional fees
  • Risk management
  • Capital expenditure
  • Wholly and exclusively incurred
  • Tax and accountancy fees
  • Company administration costs
  • Tax investigation fee insurance (TIFI)
  • Renewals of leases
  • Retainer fees
  • Further reading

This document discusses the treatment of capital expenditure and expenses which are wholly and exclusively incurred. This also covers the treatment of tax and accountancy fees, company administration costs, renewals of leases and so on.


Statutory references to ITTOIA 2005 relate to unincorporated businesses and CTA 2009 relate to companies unless otherwise stated.

Legal and professional fees can represent substantial costs to a business. For companies and individuals, they often require detailed analysis for the purpose of preparing tax computations as they represent a significant risk for disallowed items.

Legal and professional fees are usually disallowed due to relating to:

  • items of a capital nature, or (ITTOIA 2005, s 33; CTA 2009, s 53)
  • not being wholly and exclusively incurred for the purpose of the trade (ITTOIA 2005, s 34; CTA 2009, s 54)

These are potentially uncertain concepts to apply and have substantial case law supporting them. How they specifically relate to legal and professional fees is detailed in this note, but the general concepts are discussed in the Wholly and exclusively and Capital or revenue guidance notes.

Further to this, where legal and professional fees are incurred in connection with a disallowed expense, they will most likely be disallowed too. For example, if legal fees are incurred in connection with provision of a gift that is not an allowable deduction, then these will not be allowed.

Risk management

Determining whether legal and professional fees are allowable is not straightforward. It can take a considerable amount of work. Furthermore, the amounts involved can be significant. Therefore, some or all of the following actions may be appropriate in preparing the client’s return:

  • consult HMRC manuals and case law for an appropriate precedent
  • consider whether you can consult a relevant HMRC toolkit, such as the Capital or revenue expenditure , as proof of ‘reasonable care’

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