Is legal fees
tax deductible?

Partly. Legal fees for running the business, such as debt recovery, contract advice or defending a business claim, are allowable (GOV.UK). Legal costs of buying property or large equipment are capital, not running costs, and fines for breaking the law are never allowable. Landlords can deduct legal fees for lets of a year or less and lease renewals under 50 years (GOV.UK).

Legal fees follow what the legal work is for. If it protects or runs the business you already have, it is a revenue cost and allowable. If it is part of buying something you keep, such as a property or a business, it is part of the cost of that asset. And if it relates to you personally, such as a divorce or a speeding offence, it is personal.

Is legal fees tax deductible?

The HMRC rule

Professional fees for business reasons and professional indemnity insurance are allowable. The cost of preparing your Self Assessment return is not. The rule comes from Legal and financial costs, Self-employment (full) notes, SA103F, Work out your rental income when you let property.

GOV.UK says you can claim for hiring solicitors for business reasons, and cannot claim for legal costs of buying property and machinery, or fines for breaking the law (legal and financial costs). The SA103F notes say legal costs of buying property and large items of equipment and the costs of settling tax disputes are disallowable (SA103F notes). For landlords, legal fees for lets of a year or less, or for renewing a lease for less than 50 years, are allowable (landlords).

When you can claim it

• Chasing unpaid invoices and debt recovery.
• Drafting or reviewing business contracts and terms.
• Defending a claim arising from your work, and employment law advice.
• For landlords, short lets, lease renewals under 50 years and evicting a tenant to relet.

When you cannot

• Legal costs of buying premises, a let property or large equipment.
• Costs of settling tax disputes with HMRC.
• Fines and legal costs of criminal proceedings for breaking the law, in most cases.
• Personal matters, such as a divorce, will or house purchase.

What to claim instead

Legal costs of buying an asset are added to its cost. For equipment on traditional accounting, they can go into capital allowances with the asset; for property, they form part of the base cost for Capital Gains Tax when you sell. Keep the completion statement and invoices with the asset's records.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? Whether it is a running cost or something you keep depends on what you buy. Items used up within two years, and regular renewals, are running costs; things you keep are relieved through capital allowances on traditional accounting and as expenses on the cash basis.
4. Is there a specific rule? For legal fees, the deciding rule is accountants, solicitors and other professionals: professional fees for business reasons and professional indemnity insurance are allowable. The cost of preparing your Self Assessment return is not.

Worked example: a joiner’s legal bills

A joiner pays £900 to a solicitor to recover a £6,000 unpaid invoice, £350 to review a contract with a main contractor, and £1,800 in legal fees on buying a small workshop. The £1,250 of debt recovery and contract work is allowable. The £1,800 is part of the cost of the workshop and not a running expense.

Protecting the business

Legal costs of defending the business, such as a claim that your work was faulty, a dispute with a supplier or a defamation claim over your business reviews, are generally allowable, even if you lose. Defending your title to a capital asset, such as a boundary dispute over premises, is more complicated and can be capital. Damages you pay for a business breach are usually allowable too.

Criminal and regulatory matters

Fines for breaking the law are never allowable. Legal costs of defending a criminal charge are generally not allowable either, because the charge relates to you rather than the conduct of the trade, although defending a charge brought against your business conduct can sometimes be. For regulatory proceedings about your professional work, take advice before claiming.

Landlords and legal fees

Landlords can deduct legal fees for a tenancy of a year or less, renewing a lease of under 50 years, and evicting a tenant so the property can be let again. Fees for the first grant of a lease of more than a year, and for buying the property, are capital. Fees for a lease extension on a flat you own are capital too.

Employment and HR advice

If you employ people, legal costs of drafting contracts, handling disciplinary matters, defending a tribunal claim and making settlement payments to employees are generally allowable staff-related costs. Payments that relate to you personally, rather than to your role as an employer, are not.

Where it goes

Legal fees go in accountancy, legal and other professional fees, box 28 of the full self-employment pages, with any disallowable part also in box 43. Landlords put allowable legal fees in box 27 of the UK property pages.

If you are a landlord

Landlords can deduct legal fees for lets of a year or less, for renewing a lease of less than 50 years, and for evicting a tenant to relet the property (GOV.UK). Legal costs of buying the property are part of its cost for Capital Gains Tax.

Where it goes on your return and in MTD

On the self-employment pages of your return, the claimable part of legal fees belongs in accountancy, legal and other professional fees (SA103F box 28). The same category is used in Making Tax Digital quarterly updates, so recording it in the right place once keeps both returns consistent.

For a landlord, it belongs in legal, management and other professional fees (property) (SA105 box 27 on the UK property pages), and in the matching category of a Making Tax Digital property update.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

The accounting basis changes when a cost counts. On the cash basis, the default for sole traders since 2024/25, it counts when you pay it; on traditional accounting, when you incur it, with things you keep claimed through capital allowances.

How much an allowable cost saves

An allowable expense does not come back to you in full: it reduces your profit, so it saves tax at your marginal rate. For a sole trader in England, Wales or Northern Ireland that is 26p in the pound at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate. The sole trader tax calculator works out the figure for your own profit.

Records to keep

Keep engagement letters, invoices and a note of what each fee covered, especially where one bill mixes business work with personal matters such as your tax return or a house purchase. Records must be kept for at least five years after the 31 January deadline for the tax year.

If Making Tax Digital for Income Tax applies to you (qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028), the records must be digital, and each quarter's costs go into a quarterly update. Check your date with the MTD requirement checker.

Common mistakes

• Claiming legal fees on buying premises or a let property as running costs.
• Claiming costs of a tax dispute with HMRC.
• Claiming legal fees for personal matters that happen to be paid from the business account.

Related expenses

This item sits in the accountancy, legal and other professional fees category, alongside accountancy fees, professional indemnity insurance and tax investigation insurance. The A to Z of expenses answers the same question for every other cost.

If you record your costs in TapTax, each one lands in the HMRC category it belongs to, with its receipt attached, so your quarterly updates and year-end return use the same figures.