In a previous post, we spoke about what you can claim back on expenses. One of the most interesting items on that list was No. 1 – Accountants and bookkeeper’s fees. Are accountant fees tax deductible? Or is this just a technicality that requires you to jump through hundreds of loopholes for minimal return?
The short answer: Yes, accountant fees are tax deductible. Just not for everyone
Since accountant fees are tax deductible, it’s more than worth having one. An online accountant is available 24/7 to help with your finances and expenses. Your accountant will practically pay for themselves with the amount you save from tax deductible expenses, including the accountant’s service itself!
As of April 2017, anyone can claim back on their accountant fees. The exception is if you’re a contractor on a flat rate VAT scheme. This is the government’s way of trying to stop people from going into freelance work. They’ve realised they can’t dip into a contractor’s pockets as deeply as they wanted to with this scheme.
What is a Flat Rate VAT Scheme?
A flat rate VAT was a scheme where contractors could charge VAT at the full 20%. You would only need to pay a fraction of that to the government (somewhere between 4% and 14%). This meant you could pocket the difference as a tidy profit.
The downside of this scheme is that contractors couldn’t claim back any VAT they had paid out on expenses. Fortunately, most contractors have quite low expenses, so this scheme was still quite beneficial for them and meant they could still be VAT registered.
So what changed?
In April 2017, the UK government decided to increase the amount of VAT the contractor had to pay to the government up to 16.5%. This is a huge difference from the previous 4%-14% and potentially means the tax man could be taking hundreds of pounds straight out of your pocket.
The other change is what expenses can be claimed by contractor’s that work on a flat rate VAT scheme. Along with not being able to claim on any VAT paid out for expenses, contractors can no longer claim on any expense that cost less than £1,000. This will include your accountant fees (unless you’re paying extortionate amounts for an accountant…).
If you ARE a contractor working on a flat rate VAT scheme, it is still worth having an online accountant. You may not be able to include them as a tax deductible expense, but they will save you money in other ways.
If you have any questions about how the changes in the flat rate VAT scheme might affect you, or if you’re interested in speaking with an online accountant, you can contact us here.
For more information call 0800 0460 560