Over the years I have heard lots of comments on this, some say a tax return is a personal expense some say its a business expense if the cost is incidental to the accounting work.
For example, lets consider a sole trader, he has to prepare accounts and the only way to report the tax due is on a self assessment return. In many cases the only entries will be the self employed boxes.
Company Directors are probably only doing self assessment returns because they are directors and only the Salary and Dividend boxes will be completed.
We actually specify on our engagement letters to clients who have a businesses that we will complete the Self Assessment Return for Free (FOC) as part of an overall package of fixed fee services.
HMRC guidance states [BIM46450]
There is, however, a longstanding practice of allowing normal recurring legal, accountancy etc expenses incurred in preparing accounts, or agreeing the tax liability, see Statement of Practice SP 16/91 reproduced at EM3981. This has been approved by the courts as a reasonable response to the practical difficulties of apportionment…
It is the practice to allow, in computing profits assessable under Part 2 Chapter 4 of ITTOIA 2005 and under Case I & II Schedule D for companies, the normal accountancy expenses incurred in preparing accounts or accounts information and in assisting with the self assessment of tax liabilities.
So having just started working with Croner Taxwise for client tax investigation insurance, I gave them a call to check the rules and in summary, if the Self Assessment is incidental to the main accounting and tax work then it isn’t a benefit in kind and a separate fee does not need to charged (or assessed) to the business owner.
However, if the client doesn’t have a business, or has complicated tax affairs including capital gains, then they should pay a fee personally.
Equally you can’t claim accountants fees if you are an employee who has to do returns as these are clearly standalone costs and not required as part of your employment as explained in this case – Peter Figg v HMRC TC03703 16th June 2014.
On another note Tax Investigation Insurance is not a tax deductible expense, the reason for this is that you can only claim it as an expense if you are successful in any investigation, if HMRC are successful the fee is non deductible for tax. As you don’t know when or what you might be investigated for its impossible to say whether you will be successful so the best advice is not to deduct the cost against taxable income.