Legal fees in negotiating employment contract

Are legal fees incurred negotiating an employment contract tax deductible for the employee?

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I am currently employed and have been negotiating a new contract with my employer. 

This is a novel type of contract that includes unique payment terms and protections around the IP I create. Neither I nor my employer has had any prior experience with a contract of this type, so it has been developed in tandem by my legal team and theirs.

This contract will be independent of my current employment contract, which will continue as is.

My question is whether my legal fees will be tax deductible? 

At this stage, I do not know if this will be an "employment contract", or if I will be employed as an independent contractor. I expect that may affect the answer here. 

Replies (21)

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By David Ex
22nd Feb 2024 18:45

So you PAID (my emphasis) legal fees but demand, without even the basic courtesy of a “please”, FREE tax advice?

Is that correct or have I misunderstood?

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Replying to David Ex:
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By JSquire
22nd Feb 2024 19:40

Apologies, I see your point.

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Replying to JSquire:
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By paulwakefield1
23rd Feb 2024 08:00

Even though that point was overstated.

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JCACE
By jcace
22nd Feb 2024 18:53

I can't see how this is a tax deductible employment expense ... it has not been incurred wholly, exclusively and necessarily in the performance of your duties, has it?

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Replying to jcace:
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By JSquire
22nd Feb 2024 19:45

Thanks for the response.

Without the expense, there won't be performance of any duties, so I would argue it is a necessity.

The other possibility is that my employer could reimburse me for the fees and take that out of my earnings.

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Replying to JSquire:
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By Tax Dragon
22nd Feb 2024 20:00

I used that argument about my drive to work.

I lost.

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Replying to Tax Dragon:
RLI
By lionofludesch
22nd Feb 2024 20:23

Tax Dragon wrote:

I used that argument about my drive to work.

I have my doubts about the veracity of that remark.

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Replying to lionofludesch:
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By Tax Dragon
22nd Feb 2024 20:53

Said the lion to the dragon.

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Replying to Tax Dragon:
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By FactChecker
22nd Feb 2024 21:41
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Replying to JSquire:
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By FactChecker
22nd Feb 2024 21:51

OP: your final sentence needs to be addressed before the rest of your question:
"At this stage, I do not know if this will be an "employment contract", or if I will be employed as an independent contractor. I expect that may affect the answer here."

Or to put it another way, when you ask about whether the fees might be "tax deductible for the employee", other questions arise regarding who is "the employee" and of which employer?

You stated: "This contract will be independent of my current employment contract, which will continue as is" ... so by definition the new contract (and anything associated with it) appear to be independent/unrelated to your current employment.
Whilst I wouldn't start from a position of hope, the type of relationship which the additional contract may entail (and the type of entity through which you perform your part in that relationship) may well have a bearing on tax somewhere.

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Replying to FactChecker:
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By Tax Dragon
23rd Feb 2024 06:08

"Tax somewhere. "

See comment below.

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Replying to FactChecker:
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By JSquire
23rd Feb 2024 08:18

I now realise that this is a professional forum, to which I have posted in error.

But thank you very much for the constructive response.

I will seek tax advice.

So far as I understand, if I was a sole trader as part of this new contract, then my legal costs would be tax deductible. If I was a limited company, my legal costs would be tax deductible.

If I am considered an employee, then they won't be, but my employer's side of the costs would be.

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Replying to JSquire:
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By Tax Dragon
23rd Feb 2024 08:28

Fwiw I believe your tax analysis may be misinformed, but in truth this is not the place to find out for sure, as tax is always dependent on facts (and with sight of documentation), and facts (and documents) are best discussed in private with a paid advisor.

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Replying to JSquire:
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By paul.benny
23rd Feb 2024 09:12

Credit to the OP for a polite and gracious retirement. A world away from the tantrums we sometimes see from those who don't like what they hear.

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Replying to JSquire:
By SteveHa
23rd Feb 2024 13:14

JSquire wrote:

Without the expense, there won't be performance of any duties, so I would argue it is a necessity.

The legislation says incurred....."in the performance of your duties", and not,"for the performance..."

The distinction is important.

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By Tax Dragon
22nd Feb 2024 19:11

I wonder whether there is tax advice that it might be worth your taking that goes a bit beyond your question, to which the answer seems very likely to be "no".

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By paul.benny
23rd Feb 2024 06:56

Although you've described this new contract as independent of your existing employment contract, I'm sceptical as to whether that is actually the case. As I read the OP, the gist is that you will earn a return on any IP you (co)-create at work and that return is over and above your salary.

That makes the new contract simply a bonus scheme that is subject to all the same tax provisions as regular salary.

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Replying to paul.benny:
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By Tax Dragon
23rd Feb 2024 07:29

By the same token, I wonder about

JSquire wrote:

Without the expense, there won't be performance of any duties

Mine may not have been the only comment lacking a little veracity, eh lion?

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Replying to Tax Dragon:
RLI
By lionofludesch
23rd Feb 2024 08:27

[chuckle]

Folk get hung up on the "wholly, exclusively and necessarily" bit without moving on to "in the course of employment",

Getting the job is not doing the job.

That said, the Government could cut a bit more slack to employees, who generally get a bad deal. Particularly with regard to training costs. We are becoming a nation with an unskilled work force. Not that that comment has a great deal of relevance to the instant case.

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Routemaster image
By tom123
23rd Feb 2024 08:31

What would be the chances of you getting this second 'role' without first having the employment to go with it? Small, I would have thought.

You will still be the minor player - so your employer / engager will seek to roll you over.

He may base some payout on the basis of "profits" etc, but will then be in a position to minimise said profits.

The very fact of there being all this legal stuff points to that possibility.

Even if you were to be awarded shares or something, you could still lose out.

Caveat Emptor

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By JCresswellTax
23rd Feb 2024 13:18

Are legal fees incurred negotiating an employment contract tax deductible for the employee?

NO

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