Legal fees

Legal fees for business purposes are allowable when they are revenue costs of running the trade. Legal costs connected with acquiring, disposing of, or modifying a capital asset — including property — are capital expenditure and are not immediately deductible as a running cost.

Sole traderConditional

Ltd companyConditional

EmployeeNot allowable

Conditions

Legal fees incurred for business purposes are allowable where they are revenue costs. GOV.UK's self-employed expenses guidance (updated November 2024) lists as allowable: 'hiring of accountants, solicitors, surveyors and architects only for business reasons.' Revenue legal costs include debt recovery from a trade customer, negotiating a supplier contract, resolving an employment dispute, defending a trading claim brought against the business, and ongoing legal advice on running the trade.
The capital/revenue distinction is decisive. HMRC's Business Income Manual (BIM46400) states that 'professional fees connected with the acquisition, disposal or modification of a capital asset will also be capital expenditure and so disallowable' as an immediate deduction. Legal costs for purchasing property or business premises, acquiring a long lease, or disposing of a capital asset must be added to the cost of that asset for capital allowances purposes (or included in the base cost for capital gains), rather than being deducted as a running expense.
GOV.UK's self-employed expenses guidance specifically lists as not allowable: 'Legal costs for purchasing property and machinery (claim as capital allowances instead under traditional accounting).' This is a common error — even where a property purchase is clearly for business use, the solicitor's fees follow the asset's capital treatment.
Lease renewal costs are generally treated as capital under BIM46420. Legal fees for renewing a short lease with the landlord's consent may be allowed on de minimis grounds where they are small; more substantial costs are capital. Legal costs for resisting eviction or obtaining a new lease despite the landlord's opposition are similarly capital in character.
Fines and penalties for breaking the law are not deductible under any circumstances. GOV.UK's guidance lists 'fines for breaking the law' explicitly as a non-allowable cost. This covers parking fines, health and safety penalties, regulatory sanctions, and similar charges.
The cost of preparing a personal Self Assessment tax return — as opposed to the business accounts that feed into it — is not a business expense and is not allowable. Where an accountant or solicitor charges one fee covering both business and personal work, only the business element is deductible.
For a limited company, revenue legal fees are an allowable corporation tax deduction. Legal costs for acquiring or disposing of capital assets are treated as capital in the same way as for unincorporated businesses.
Employees cannot generally claim legal fees as a personal tax deduction. The employee test — 'wholly, exclusively and necessarily' in the performance of the duties — is strict, and personal legal costs borne by the individual are generally not allowable even if indirectly connected to the employment.

Common mistakes

Deducting legal fees paid on purchasing business premises or machinery as an immediate running cost — they are capital and must follow the asset's treatment.
Claiming fines, regulatory penalties, or similar sanctions as allowable legal costs.
Treating the cost of preparing a personal tax return as a deductible business expense.
Assuming all legal costs that relate to the business are allowable — the business purpose is necessary but not sufficient; the capital/revenue test applies independently.

What to keep

Solicitor's invoices or bills of costs describing the matter and the fees charged.
A note of the business purpose for each piece of legal work commissioned.
Where legal work covers both capital and revenue matters — for example, negotiating a new lease that includes both a premium element and ongoing rent terms — an allocation between the two elements.

Real-world example

A limited company instructs solicitors for two matters in the same year: £1,200 for reviewing and negotiating a new supplier contract (revenue — allowable), and £3,800 in conveyancing fees on the purchase of a commercial unit (capital — not immediately deductible; the amount is added to the cost of the property for Structures and Buildings Allowance purposes). Only the £1,200 is deducted in the profit and loss account for that year.

Frequently asked

Can I deduct the cost of chasing an unpaid invoice through a solicitor?

Yes. Legal costs for recovering a trade debt are a revenue cost of the business — the action is part of collecting income from normal trading activity, not a capital transaction. Keep the solicitor's invoice and a note linking it to the specific debt recovery matter.

We used a solicitor to draft our shareholder agreement — is that allowable?

It depends on the nature of the work. If the agreement relates to setting up or restructuring the capital structure of the company, it is likely to be a capital cost. If it is routine maintenance of an existing agreement — for example, a periodic update to reflect changes in personnel — it may be treated as a revenue cost. This is uncertain territory; take professional advice on which treatment applies.

I was taken to an employment tribunal by a former employee. Can I deduct my legal costs?

For a sole trader or company, the cost of defending an employment claim brought by an employee is generally a revenue cost connected with running the business and is allowable. It is not a capital cost and does not involve a fine for breaking the law — unless the tribunal finds deliberate wrongdoing and awards a specific penalty, in which case that penalty element would not be allowable.

Not sure how this applies to you?

The rules shift with your circumstances. A qualified accountant can confirm what you can claim and handle it for you.

Find an accountant

Related allowances

Source: HMRC guidance · Last checked 2026-06-18

This page is general information based on HMRC published guidance, not tax advice. Status shown is a plain-English summary — your own position can differ. Always check the HMRC source above and speak to a qualified accountant before making a claim.