My client pays £150 a month to a legal firm for legal cover which they will use to review contracts and general legal advice for the business. I do not anticipate that the advice will relate to any capital items. On that basis are the legal fees deductible even though the advice received is not supported by a separate invoice for each query? I have disallowed for now and was going to get a list of queries at the end of the year but maybe it is OK to deduct as the costs are wholly and exclusively for the trading activity. Thanks for any assistance.
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depends really
tax law says where there is both business and private purpose in meeting an expense the "wholly and exclusively" test has not been met and as a result no tax relief is allowed unless any of the following:
-the expenditure can properly be split between business and private
or
-the private element was merely incidental to the business purpose or
-specific tax law allows the expenditure or
-HMRC practice allows a % of the expenditure.
That was and extract taken from a seminar from the ACCA
Accountants should never disallow anything
By which I mean, accountants simply advise clients as to what can or cannot be claimed as a deduction from taxable income. It may seem to be semantics but it is an important distinction in the mind of a client. HMRC disallow expenses - we don't.
On this question - unless there is reason to believe the retainer has been incurred other than W&E for business purposes I would advise the client that they can claim the full amount of the retainer. If there is evidence that the decision to agree to the retainer was influenced by the prospect of incurring legal fees on capital related projects the issue would be more open to challenge.