Are accounting fees tax deductible for sole traders?

Many sole traders pay an accountant at some stage, even if it is only to sort out their first tax return or tidy up a set of spreadsheets that has got a bit out of hand.

The cost is usually allowable as a business expense.

That said, it is not quite as simple as saying every accounting-related cost can be put through the business.

What matters is what the expense relates to.

Work carried out purely for your trade will normally be fully tax deductible.

The position changes where the cost relates to personal matters rather than the business.

For a broader overview, read our guide to what business expenses sole traders can claim.

So can you claim accountant fees?

Usually, yes.

HMRC’s guidance explains that business expenses must be incurred wholly and exclusively for the purposes of the trade. In simple terms, the cost must relate to the business rather than to you personally.

Fees paid to an accountant for bookkeeping, preparing accounts, completing the self-employed pages of your Self Assessment return, or advising on routine tax matters connected with the business will normally qualify.

This approach is supported in HMRC’s Business Income Manual. In BIM46455, the manual refers to the longstanding practice of allowing normal recurring accountancy costs incurred in preparing accounts or agreeing the tax liability on trading profits.

Examples of accountant fees that are usually allowable

Typical examples include:

• preparing your annual accounts
• keeping or reviewing your bookkeeping records
• preparing and submitting your Self Assessment return where it relates to business profits
• advice on allowable expenses, record keeping, VAT, or cash basis accounting
• help dealing with routine HMRC correspondence about the business
• setting up or reviewing accounting software used for the business

For many sole traders, this covers most of the work an accountant actually carries out.

Accountants often help with choosing or setting up accounting software as well. In most cases that work still relates directly to running the business.

Our guide to software subscriptions for sole traders explains how those costs are normally treated.

What happens when an invoice mixes personal and business costs?

Difficulties tend to arise where a cost has both a business and personal element.

An accountant might prepare your sole trader accounts but also advise on a personal capital gain, a rental property, or your spouse’s tax affairs.

That does not automatically make the entire invoice disallowable. At the same time, the full amount should not simply be claimed against business profits.

The sensible approach is to separate the business element from the personal element and claim only the portion that relates to the trade.

The same principle applies to other mixed-use costs. Phone bills provide a good example. Where a bill includes personal use, only the business proportion should be claimed. Read more in our guide to phone and internet expenses.

Invoices covering both business and personal work should ideally show a clear breakdown. Keeping that evidence makes your records easier to explain if HMRC ever asks how a figure was calculated.

What about fees for your tax return?

This is where people sometimes hesitate, because a Self Assessment return contains both personal and business information.

For a sole trader, however, the return includes the accounts and profit calculation for the business itself.

Accountancy work connected with preparing those figures generally counts as part of running the trade.

HMRC’s manuals recognise the longstanding practice of allowing recurring accountancy costs tied to preparing accounts or agreeing the tax liability on trading profits.

Where the accountant prepares the business figures and uses them to complete the self-employed pages of your return, the cost will normally be deductible.

A different position arises where the work also covers personal investment income, capital gains, or other private matters. In those cases, only the business related portion of the fee should be claimed.

The situation is slightly different for a limited company director.

A company’s accounts and Corporation Tax return belong to the company itself, so those accountancy fees are usually paid and deducted by the company rather than the individual.

Can you claim fees paid before the business started?

Sometimes this is possible.

Advice received shortly before trading begins may still qualify, provided the cost relates to setting up the trade and would have been allowable if incurred after trading started.

Pre-trading costs follow their own rules. Our guide to backdating business expenses explains how these are treated.

Do fees for bookkeeping software support count?

They normally do where the work relates to the business.

Examples include setting up the chart of accounts, importing transactions, reconciling bank feeds, or reviewing bookkeeping records before filing.

In principle this is no different from paying an accountant to prepare year end figures manually.

The point has become more relevant as many sole traders move onto digital record-keeping and software-based reporting.

Even where the day to day bookkeeping is done personally, accountants are often involved in setup, corrections, or periodic reviews.

Further background can be found in our guide to Making Tax Digital for the self-employed and our overview of accounting software for MTD Income Tax.

Where to include accountant fees in your records

Most sole traders record them under professional fees or accountancy fees.

The exact label matters less than keeping good records.

The key points are that the invoice is retained, the purpose of the work is clear, and the treatment is consistent with the rest of the accounts.

Keep:

• the accountant’s invoice
• a note explaining any split between personal and business work
• emails or engagement letters describing what the work covered

This becomes particularly useful where several pieces of work appear on the same invoice.

When an accountant can still save you money

Accountancy fees are sometimes seen purely as a cost. In practice, many sole traders find that a good accountant helps identify claims that might otherwise be missed.

Examples include mileage, working from home costs, training expenses, or the correct treatment of capital allowances on equipment.

While the fee itself is normally deductible, the bigger benefit often lies in getting the rest of the tax return right.

If you are still deciding whether to hire one, these guides may also help:

• Do you need an accountant as a self-employed person?
• How much should you pay for an accountant if you are self-employed?
• How to switch accountants as a sole trader