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HMRC internal manual

Business Income Manual

Specific deductions: professional fees: court proceedings

Need to establish the facts

You need to examine the precise nature of the claims by the parties to the proceedings to consider the extent to which the fees are to be disallowed. The fees may be disallowed because they:

  • are capital expenditure
  • fail the ‘wholly and exclusively’ test (see BIM42100 onwards), or
  • are a loss which is not connected with or arises from a trade

The outcome of the proceedings (i.e. whether the taxpayer ‘wins’ or ‘loses’) does not determine if the expense is deductible. See both BIM40100 onwards and BIM42950 onwards for compensation and damages and BIM42515 for fines.