Can I claim legal fees chasing payments as a tax deduction?

I am considering taking legal action to recover a debt from a customer who has a history of not paying me. Therefore, can my solicitor’s fees and other legal costs be regarded as a legitimate business expenses for tax purposes and are there different procedures depending on the size of the debt?

1st November 2019

Legal and professional costs that a business incurs are allowable when they are wholly and exclusively for the purposes of the trade.

Legal fees resulting from attempting to recover bad debts are deemed to be incurred for the purpose of the trade and are therefore considered to be allowable expenditure in establishing your business profit for the year.

It should also be noted that where a bad debt relating to ordinary trade transactions with a specific customer is written off, that amount is also an allowable deduction. This contrasts with the rules for a general bad debt provision, which is not an allowable deduction for tax purposes.

So yes, the legal fees incurred in respect of that debt recovery are allowable as a deduction for tax purposes and you get an allowable deduction in the accounts for the bad debt itself, as the debt relates to a specific customer.

Collecting debts from customers can be stressful and we have lots of experience in this area, so we can discuss the best approach to take. So please contact us on 0800 0523 555 or use our simple online contact form to arrange a free initial consultation.

By Samantha Skyring FCCA

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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