When you've just started your business, every penny counts. So, you may decide to handle tax preparation yourself in order to keep costs low. But once your business (and your profits) start to grow, it's worth hiring someone to do your taxes.
A good accountant will be able to claim credits, exemptions and other deductions you might not have known about. And, they can help you make sure you don't make costly mistakes that could result in a fine from HMRC. What accountants charge for tax preparation can vary quite a lot. Luckily, you can usually deduct these expenses from your tax bill. Here's how it works.
Tax preparation fees are the fees your accountant charges you to help you prepare for tax time. Usually, the fees cover the cost of:
That said, if you prepare your taxes yourself, you may also incur tax preparation costs. Typically, these would include the cost of:
You can usually deduct expenses from your tax return if you've incurred them "wholly and exclusively" for business purposes. So, if you're in construction, you can deduct the cost of protective equipment, such as a hard hat. This is because you need it to stay safe on site.By contrast, if you meet a client for lunch, you can't deduct your lunch bill (unless, in some instances, you're travelling and claiming subsistence). Even if you talk about work the whole time, you'd still have to eat to stay alive, right?But that's only one part of the picture. If you use a "definite proportion" of an expense wholly and exclusively for business reasons, you can still deduct it. So, for example, you can deduct business mileage from your taxes, even though you drive your personal car.This rule applies to all expenses, including tax preparation fees. So, you can deduct your tax preparation costs if you've incurred all or a definite proportion of them wholly and exclusively for business purposes.
Because of the "wholly and exclusively" rule, not everyone can deduct tax preparation fees. Whether you can deduct them and what you can deduct depends on your tax status.
If you're an employee and you hire an accountant to prepare your taxes, you cannot deduct their fees. This holds true even if you have to file a self assessment tax return. This is because you didn't incur the expense for business reasons.However, if you have other income, for example from a rental property, you may be able to claim part of your tax preparation fees against that income.
As a sole trader, you can deduct the following tax preparation costs:
You cannot claim your accountant's fee for filing your self assessment tax return. HMRC usually lets this slide.
If you do business as a limited liability company, you can deduct all tax preparation costs. This includes the cost of filing your Company Tax Return.Unfortunately, you're technically an employee of your company. So, you won't be able to claim your personal tax preparation costs.