Claiming back the VAT on accountancy fees

What is the Function of a VAT Accountant?

If you run a business that sells taxable goods to customers, you’ll have to pay VAT on all sales once the £85,000 level is reached. VAT reports for this tax must be reviewed on yearly accounts if you have overpaid VAT to HMRC that exceeds the amount you may have paid in VAT to acquire your products.

VAT accountants devote time to ensuring that your company pays HMRC the correct amount of VAT and that all VAT registration requirements are followed for the appropriate VAT scheme for your firm. VAT accountants will need access to your company’s records to guarantee that the correct VAT taxes are being collected at the correct rate for HMRC reporting.

VAT accountants may also provide important guidance throughout the tax year and answer all of your inquiries, saving you time and frustration when dealing with the complicated procedures involved with VAT. Due to the large number of goods and services that are subject to VAT, such assistance from a VAT team is required.

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Furthermore, as a result of the adoption of the “Making Tax Digital” Act in 2019, VAT return UK must now be computed and submitted digitally, and a business will no longer be able to submit its returns via HMRC’s online services. MTD functionally compliant software is required to submit VAT returns.

To summarise, navigating the VAT process can be challenging and time-consuming. VAT accountants may assist by handling all of these accounting procedures and ensuring that they are completed correctly and efficiently. Any business that sells goods or services that are frequently subject to VAT should hire a VAT accounting team.

We’ll go over when you can get tax relief for accountant fees in this piece.

The following accountant fees are normally eligible for a tax deduction:

  • Preparing the books
  • Compiling and submitting tax returns to HMRC
  • HMRC and you have reached an agreement on your tax obligations.

This is consistent with HMRC’s regular procedure, as outlined in their internal advice.

RELATED: How to become VAT-registered as a sole trader

Is there anything that isn’t permitted?

Accountancy fees that are not solely for business purposes are not authorised. For instance, consider this:

Costs associated with calculating capital gains.
Preparing a personal tax return or a tax computation for an individual or a partnership partner. Apart from computing the tax due on commercial profits, HMRC normally allows additional personal charges where the costs are small.

What about HMRC investigation fees?

Accountancy fees related to an HMRC investigation may qualify for tax relief. These would be permissible only if an investigation resulted in no profit adjustment. Furthermore, any fees expended in dealing with an HMRC inquiry involving an adjustment to profits that is not the consequence of negligent or fraudulent conduct or careless behaviour are permitted.

Fees incurred as a result of your carelessness or malfeasance on an HMRC investigation are not permitted.

Legal fees, even if incurred as a result of a successful appeal against HMRC, are unfortunately not tax deductible.

Isn’t there a fee-protection policy available?

Premiums paid to insurance against professional charges of an investigation are generally acceptable only if the professional fees are tax deductible.

The premiums paid on the policy are not admissible if the policy holder is entitled to claim for the costs of negotiating extra tax liabilities as a result of careless or deliberate mistakes.

Many policies do not allow for claims for any additional responsibilities stemming from careless or purposeful behaviour, implying that the premiums may be deductible.

Is Accountancy Fees Subject to VAT?

The fact that a business’s accounts are entirely transparent to anyone who wants to look at them is a contentious aspect of accounts with Companies House. Companies House’s services are necessary for openness, but they are also a nuisance to the business.

Companies House has a webpage where you may look at their financial records. Simply log in and search for your firm to see the accounts filed with Companies House that have been reviewed and made public.

Is it possible to deduct VAT from accounting fees?

Their internal directives are that

  • HMRC allows VAT to be charged on accountancy fees paid by a sole trader or partnership. Only when fees obviously do not relate to the VAT-registered firm are they exempt. This lenient policy is in place to minimise tax disagreements over little sums.
  • In a landmark tax decision, however, a partnership was not permitted to deduct VAT on the percentage of its tax consultants’ costs connected to the preparation of partners’ personal tax forms, as well as their personal tax calculations and payments. Given the size of the VAT in this situation, it’s hardly surprise that the collaboration was unsuccessful.

As a result, it’s a good idea to ask your accountant to split your charge in order to avoid an unexpected Income Tax or VAT bill.

It should distinguish between personal tax and commercial activity.

What’s the Difference Between a VAT Return and a Tax Return?

A tax return and a VAT return are two completely different types of paperwork. Due to the complicated procedures and scrutiny that goes into a VAT return, HMRC mandates that tax be settled in a separate form.

VAT returns are also more typically calculated quarterly, although a traditional tax return is usually completed and filed at the end of the fiscal year.

RELATED: VAT Accountants Guide to VAT

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