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HMRC internal manual

VAT Input Tax

From
HM Revenue & Customs
Updated
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VAT Input Tax basics: accountancy fees

A sole trader’s or a partnership’s accountancy costs generally relate to a number of services provided to the taxpayer by the accountant. These may include:

  • general accountancy advice
  • VAT advice
  • income tax advice.

It is arguable that income tax is the responsibility of the sole trader or partner as an individual and is not strictly a business matter.

In order to avoid disputes over small amounts of tax our policy is that VAT on a sole trader’s or a partnership’s accountancy fees should usually be claimed in full subject to the normal rules.

The only exception to this is where the accountant’s fees clearly relate to taxation matters that do not relate to the VAT registered business. An individual might for example be charged significant costs relating to inheritance tax. This would not normally be related to the VAT registration and input tax should not be claimed. Usually, however, a sole trader’s or a partner’s tax advice can be treated as entirely business related.

The position is similar in the case of companies. Companies pay Corporation Tax, which is clearly a business matter. However, a company might want to reclaim input tax on advice relating, for example, to a director’s inheritance tax. This should be dealt with in the same way as any other director’s private expense that is paid for by a company. The supply of advice is not to the company and is not used by the company. As a result there is no entitlement to input tax.

Businesses will also sometimes agree to pay for UK tax advice needed by employees who have come to work in this country. We accept this is a business expense.