If you run a limited company, the fees you pay your accountant will usually be a tax-deductible business expense, reducing your taxable profits and the amount of Corporation Tax your company has to pay.
This includes the normal cost of preparing your annual accounts, Corporation Tax Return and providing other standard accountancy services for your company.
There are some important exceptions, however, particularly where your accountant carries out work for you personally rather than for the company.
Are limited company accountant fees tax deductible?
Yes. The normal accountancy fees your company pays for business purposes can usually be deducted when calculating its taxable profits for Corporation Tax.
HMRC specifically lists paying an accountant to prepare a company’s accounts as an example of a revenue expense incurred in the day-to-day running of a business.
As with other limited company expenses, the cost must be incurred wholly for a business purpose.
For a typical contractor or small limited company, most of the work carried out by your accountant will fall comfortably within this rule.
Which accountancy fees can your company claim?
Most contractors pay their accountant a fixed monthly fee that covers several services, rather than receiving a separate invoice for each piece of work or based on time spent.
Depending on your package, these may include:
- preparing and filing your annual accounts
- preparing your Corporation Tax calculations and Company Tax Return
- running your director’s payroll
- preparing and submitting VAT returns
- bookkeeping and accounting software
- dealing with HMRC correspondence relating to the company
- providing tax and accounting advice about the business
- filing your confirmation statement and dealing with Companies House
These are all standard company-related accounting tasks, and fully tax-deductible.
To compare firms and find out what services are typically included in their monthly packages, read our popular contractor accountant fees guide.
How much Corporation Tax does the company save?
Accountancy fees are deducted from your company’s income when calculating its taxable profit, so you pay less Corporation Tax as a result.
For example, if your company pays £1,200 in allowable accountancy fees during the year, its taxable profit is reduced by £1,200.
The Corporation Tax saving depends on the rate your company pays. A company paying Corporation Tax at 19% would save £228 on a £1,200 deductible expense, while the tax saving may be higher for companies with profits above the small profits threshold.
You can read more about the current rates in our guide to Corporation Tax for contractors.
What about your Self Assessment tax return?
Accountancy work relating to you personally is treated differently from work carried out for your company.
The cost of preparing your company’s annual accounts and Corporation Tax Return is a business expense, whereas a director’s Self Assessment return relates to their personal tax affairs.
If your accountant bills you personally for preparing your tax return, you cannot put that cost through the company and claim Corporation Tax relief.
If the company pays a separately identified fee for your personal tax work, there may also be benefit-in-kind and National Insurance consequences, so paying the bill through the company doesn’t turn it into an allowable business expense.
Many contractor accountants include a straightforward Self Assessment return for a director in their standard monthly or annual package, without charging a separate fee. If the overall fee is unchanged whether they prepare your tax return or not, the full accountancy fee may still be tax deductible.
We look at all of these scenarios in our guide: Can directors claim for personal tax return advice on expenses?
What about tax advice from your accountant?
Tax advice which relates directly to your company will normally form part of the accountancy services provided to the business.
This might include advice about Corporation Tax, VAT, payroll, company expenses or the tax consequences of decisions you are considering on behalf of the business.
Advice which relates solely to your personal finances is treated differently. Paying your accountant for advice about a personal investment or inheritance, for example, would not become a company expense simply because you are a company director.
Where an accountant’s invoice covers both company and personal work, ask the firm to identify the separate elements if the amounts involved are significant.
Can you reclaim VAT on accountant fees?
If your limited company is VAT registered and your accountant charges VAT, you can normally reclaim the VAT on fees for work carried out for the company.
This includes services such as preparing your company accounts, Corporation Tax work and general business tax advice. VAT on advice relating to your personal tax affairs cannot normally be reclaimed by the company.
Make sure any invoices and your initial accountancy paperwork are made out to your limited company, and keep them with your accounting records.
Are all professional fees tax deductible?
Accountancy fees are only one type of professional cost a limited company might incur, and you shouldn’t assume that every bill from an accountant, solicitor or other adviser automatically qualifies for Corporation Tax relief.
Professional fees relating to the normal running of your business are often allowable, but different rules apply to costs that are capital in nature or have a non-business purpose.
Read more in our main guide to limited company expenses you can claim.
Keep a record of your accountant’s fees
As with any other company expense, you should keep a record of what your accountant charges and the services covered.
Most contractor accountants take their monthly fee by Direct Debit, with the costs and services set out when you sign up rather than sending you a new invoice every month. Keep a copy of this fee schedule, along with any invoices for additional work.
The monthly payments should also appear in your business bank account and are easily tagged in your accounting software.
If you’re unsure whether your company can claim any type of expense, check with your accountant, especially (and importantly) if any of the costs relate to you personally, not the business.