What expenses can law firms claim as tax deductible?

Running a law firm comes with significant costs, from staff salaries to professional insurance. Fortunately, many of these expenses are tax deductible, meaning they can be subtracted from your taxable profit to reduce your overall tax liability.

Knowing what qualifies as an allowable expense helps solicitors remain compliant with HMRC rules while ensuring they do not pay more tax than necessary. However, not all costs are eligible, and law firms must ensure they only claim for expenses incurred wholly and exclusively for business purposes.

This article outlines the key tax-deductible expenses that law firms can claim and offers guidance on how to record them correctly.

Understanding tax-deductible expenses

A tax-deductible expense is a legitimate business cost that reduces the amount of profit subject to tax. HMRC allows law firms to claim any expense that is wholly and exclusively for business purposes.

For partnerships and LLPs, this reduces the taxable profits shared between partners. For limited company law firms, it reduces Corporation Tax liability.

Personal or mixed-use expenses (for example, using a company car for personal trips) must be apportioned so only the business portion is claimed.

Common tax-deductible expenses for law firms

1. Staff salaries and payroll costs

Employee wages, National Insurance contributions, and pension contributions are fully tax deductible. This includes administrative staff, paralegals, legal secretaries, and trainee solicitors. Bonuses, overtime, and employer pension contributions also qualify.

If the firm employs partners or directors, any salaries paid through PAYE can be deducted as business expenses.

2. Rent, rates, and office costs

Rent for office premises, business rates, utility bills, and maintenance costs are all deductible. Law firms operating from serviced offices or co-working spaces can claim their monthly licence fees as rent.

If the firm owns its building, mortgage interest on the business portion and property insurance can also be claimed. Cleaning, repairs, and security costs are allowable too, provided they are for business premises.

3. Professional indemnity insurance and regulatory fees

Professional indemnity insurance (PII) is a mandatory expense for solicitors and fully deductible. Other regulatory and professional fees such as SRA practising certificate fees, Law Society memberships, or compliance subscriptions are also allowable.

4. Office supplies and technology

Law firms can claim VAT and tax deductions on everyday office supplies, including stationery, postage, printing, and consumables.

Technology costs such as computers, printers, scanners, phones, and software licences (for case management, accounting, or time recording systems) are also deductible. If purchased outright, these may qualify for capital allowances under the Annual Investment Allowance (AIA).

5. Marketing and advertising

Marketing expenses are fully deductible if used to promote the firm’s services. This includes:

• Website design and maintenance.

• Search engine optimisation (SEO) and pay-per-click (PPC) campaigns.

• Advertising in legal directories or local media.

• Networking event sponsorships.

• Social media management and branding.

Hospitality or client entertainment costs, however, are generally not deductible for tax purposes.

6. Travel and subsistence

Travel expenses incurred while working away from the usual place of business are deductible. This includes train, taxi, and mileage costs for business journeys, as well as parking fees and tolls.

If staff or partners stay overnight for client meetings or court appearances, hotel costs and reasonable meals are also allowable. Travel between home and a regular office is not deductible, as HMRC treats this as personal commuting.

7. Training and professional development

Law firms can deduct the cost of continuing professional development (CPD), legal training courses, and professional subscriptions that keep staff qualified and up to date.

This includes:

• SRA-accredited training courses.

• Legal conferences and workshops.

• Specialist certifications and compliance training.

Education costs that provide new qualifications outside the firm’s existing scope may not qualify.

8. Accountancy and bookkeeping fees

Fees paid to accountants, bookkeepers, or tax advisers for preparing accounts, VAT returns, or compliance reports are fully deductible.

This includes the cost of preparing the SRA Accountant’s Report and advice on tax planning or payroll management.

9. Bank charges, interest, and finance costs

Bank fees, overdraft interest, and loan interest for business purposes are tax deductible. Credit card or finance agreement charges linked to firm operations can also be claimed.

If the firm has partners’ loans or start-up financing, interest paid on those loans (used for business purposes) may also be deducted.

10. Subscriptions and memberships

Membership fees for professional organisations such as the Law Society, Resolution, or the Association of Personal Injury Lawyers are deductible.

However, personal memberships or social clubs unrelated to business activity cannot be claimed.

11. Depreciation and capital allowances

Law firms that buy long-term assets, such as office furniture, vehicles, or technology equipment, cannot claim depreciation directly. Instead, they use capital allowances to deduct the cost over time or in full under the Annual Investment Allowance (AIA).

This provides a tax-efficient way to offset the cost of investment in equipment or infrastructure.

12. Telephone, broadband, and communication costs

Telephone lines, mobile phones, and internet connections used for business are deductible. If there is personal use (for example, a mobile phone used outside of work), only the business portion can be claimed.

Cloud storage, video conferencing tools, and legal communication platforms also qualify as allowable expenses.

13. Motor expenses

If partners or staff use vehicles for work purposes, the firm can claim mileage or a proportion of running costs. HMRC’s approved mileage rates (45p per mile for the first 10,000 miles and 25p thereafter) simplify this process.

Alternatively, firms can claim a percentage of car expenses based on actual business use. Lease payments for company vehicles are also deductible, though restrictions apply for high-emission vehicles.

14. Bad debts and write-offs

If a client fails to pay their invoice and the debt is deemed irrecoverable, the amount can be written off and claimed as an allowable expense. However, law firms must demonstrate that reasonable efforts were made to recover the debt before writing it off.

Expenses that are not tax deductible

Some expenses cannot be claimed, even if they are business-related. These include:

• Client entertainment and hospitality.

• Fines or penalties.

• Personal expenses unrelated to the business.

• Drawings or partner withdrawals.

Claiming these incorrectly can lead to HMRC penalties, so it is vital to distinguish between personal and business costs.

Importance of accurate record keeping

To claim tax deductions correctly, law firms must maintain clear and accurate financial records. This includes:

• Receipts and invoices for all purchases.

• Detailed mileage logs and travel records.

• Digital bookkeeping compliant with Making Tax Digital (MTD).

• Evidence of business purpose for each expense.

Accountants can help law firms set up effective bookkeeping systems using cloud-based software such as Xero, QuickBooks, or Clio.

How accountants help maximise deductions

An accountant experienced in legal sector finances can:

• Identify allowable expenses specific to law firms.

• Manage capital allowance claims for equipment and property.

• Ensure compliance with both HMRC and SRA rules.

• Advise on partner drawings, staff expenses, and tax-efficient structuring.

• Prepare accurate tax returns and financial statements.

By working with a professional accountant, solicitors can ensure they claim all eligible deductions while maintaining full compliance.

The bottom line

Law firms can claim tax deductions on a wide range of business expenses, from salaries and rent to professional insurance and marketing. The key rule is that each cost must be wholly and exclusively for business purposes.

Maintaining accurate records and seeking expert accounting advice ensures your firm stays compliant and as tax efficient as possible. By maximising legitimate deductions, solicitors can reduce their tax bill, improve profitability, and reinvest more into the growth and success of their practice.