Accountants offer advice on various subjects and help you prepare financial statements and company accounts. The good news is that the HMRC will allow your business to claim a tax deduction for some of the fees your accountant will charge.
Your accountant might have assisted you in setting up your company, advised on your organisation’s most appropriate legal structure, or prepared your latest accounts. What can your organisation claim to minimise the yearly tax bill?
If you are struggling with the same question, continue reading this article to determine whether accounting fee is tax deductible.
What Are Tax Deductible Expenses?
Before we move on to see if the accounting fee is tax deductible, let’s first understand what tax-deductible expenses are. Businesses usually have to spend much money before they can earn money. For example, if you run a delivery business that requires a fleet of vehicles, you will have to purchase those vehicles, fill up their fuel tanks, and invest in their maintenance to keep them in good condition – all of which will cost money.
Your business could not operate without these vehicles, so the money you spend on them is not taxed. Thus, these costs are deducted from the business’s gross income before that’s subject to tax.
Therefore, if your business took £300,000 the previous year but had £5,000 worth of tax-deductible expenses, only £250,000 will be taxed.
Is Accounting Fees Tax Deductible?
Generally, for an item to get categorised as tax deductible, it must be “wholly, exclusively necessary” for the company. That said, HMRC guidelines can sound very complex and are primarily based on whether the expenses you claim are ‘reasonable’ or ‘fair.’ There might also be an impact on how much personal tax you have to pay. Let’s look at which aspects this applies to.
Look at the following examples to determine if they are tax deductible.
Costs of Starting a Business
The costs involved at this stage are minimal, depending on the business’s size. That said, HMRC doesn’t allow any business to claim against this service. This is where it gets a bit complicated. You can claim against the cost of starting a business as an expense. However, you cannot use it to lower your overall corporation tax.
Filing the Company Tax Return
You will be happy to discover that filing the company tax return is tax deductible! When an accountant prepares your financial reports and sorts out your company’s tax returns, these activities are tax deductible. This is because, to trade, your business must submit accounts every year.
Personal Tax Advice and Self-Assessment Tax Returns
You will not be able to minimise your corporate tax by subtracting accounting fees relating to your personal affairs. Nevertheless, if you have paid for these services in the past year, you can add this amount back into your corporation tax calculations. This type of expense is considered a ‘benefit in kind.’
Legal and Accounting Service
Legal and accounting service is tax deductible. When you onboard solicitors, architects, surveyors, and accountants solely for company reasons, you can calculate them as a deduction. The cost incurred by your business for insurance premiums and professional indemnity is also another deduction. Certain items aren’t taxed deductibles, such as the legal costs you bear when you purchase machinery and property. You can use conventional accounting procedures to claim the costs as capital allowances.
What Are Other Tax Deductible and Non-Tax Deductible Expenses?
Several expenses are tax-deductible, depending on the nature of your business and its ongoing needs. Here are some everyday tax-deductible expenses.
- office costs, including internet and phone bills
- travelling costs, including transport fares and fuel
- clothing expenses, including protective outfits and uniforms
- subcontractor costs and salaries
- raw materials and stock for resale
- financial fees, including insurance or bank charges
- lighting and heating in your business premises
- rent on business premises and business rates
- marketing and advertising costs
All these expenses need to be made solely for company purposes instead of personal uses (even though the line sometimes gets blurred, such as when you’re doing work from home and claiming electricity bills). You also must rigorously document your expenses if you wish to claim back tax on them. Thus, encourage this practice among your staff members and make sure you keep and share all the receipts with your accountant.
Some business costs are not tax deductible. These encompass any legal fees that come from not adhering to the law (such as parking tickets), and you cannot claim the legal costs of purchasing a new property.
And even though work-related travel costs are covered, travelling between your workplace and home is not covered. Moreover, despite what you might have heard, entertainment costs such as hosting a dinner for clients are also not tax deductible.
Last Few Words
Once you’ve all your purchase receipts for the year and can prove how much you spent on your business, it is time to make a claim. You can do this through your yearly self-assessment tax return. You will not have to submit your records when you submit your tax return; however, you should keep them handy as HMRC might ask to see them.
Hiring an accountant to manage your accounting and bookkeeping activities is usually more efficient if you’ve more than a few business expenses to track. Running a business involves many things, so it’s best to leave the tedious administration tasks such as filing tax returns, updating your information with the HMRC, calculating expenses, completing company accounts, etc., to an accountant. This way, you can focus on other more value-adding tasks, such as company growth, ensuring your customers get the best service, etc.
At ISA Consortium, we offer various accounting and bookkeeping services to help you focus on your business goals. Contact us for more information!
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All this and more
We offer all the above as part of our full Tax Services and Accounting and can also help you with Capital Gains Tax, Inheritance Tax, Retirement Planning, even filling out your Self-Assessment Tax Returns for you.