What expenses can law firms claim as tax deductible?

At Towerstone Accountants we provide specialist accountancy services for solicitors and law firms operating under SRA regulation. This article has been written to explain What expenses can law firms claim as tax deductible in clear practical terms so you understand how the rules apply in day to day practice. Our aim is to help you stay compliant protect client money and make informed financial decisions.

One of the most important but often misunderstood areas of running a law firm is understanding what expenses can be claimed as tax deductible. I see this cause confusion at every level, from newly established practices to long standing firms with multiple partners. Some firms are overly cautious and miss legitimate deductions. Others are too relaxed and expose themselves to risk during an enquiry.

The reality is that tax deductible expenses are not about clever tricks or aggressive interpretation. They are about applying a clear principle consistently and keeping good records. When this is done properly firms reduce their tax bill legitimately, improve cashflow, and avoid unpleasant surprises.

In this article I will explain what expenses law firms can usually claim as tax deductible, how the rules work in practice, and where firms need to be careful. I will focus on real world examples and the approach taken by HM Revenue & Customs rather than abstract theory.

The basic rule for tax deductible expenses

The starting point is simple in principle even if application can be nuanced. An expense is generally tax deductible if it is incurred wholly and exclusively for the purposes of the business.

For law firms this means the cost must be incurred to run the practice and generate income. If there is a personal element the deduction may be restricted or disallowed entirely.

This rule applies regardless of whether the firm operates as a sole practitioner partnership LLP or limited company, although the way deductions are claimed can differ.

Office premises and occupancy costs

Most law firms incur significant costs in relation to their premises. These are usually among the largest deductible expenses.

Common allowable costs include:

• Office rent

• Business rates

• Service charges

• Utilities such as electricity water and heating

• Office cleaning and maintenance

• Security services

If the firm operates from commercial premises these costs are normally fully deductible. Where part of the home is used as an office only the business proportion can be claimed.

Repairs maintenance and fit out

Costs incurred to maintain existing premises are usually deductible. This includes routine repairs and decoration.

Allowable expenses typically include:

• Painting and decorating

• Repairs to fixtures and fittings

• Maintenance contracts

• Replacement of broken equipment

However costs that improve or significantly alter the property may be treated as capital expenditure rather than revenue. In those cases relief is usually given through capital allowances rather than as an immediate deduction.

Staff salaries and employment costs

People are the core asset of any law firm. Employment costs are therefore a major deductible expense.

These include:

• Salaries and wages

• Employer National Insurance contributions

• Pension contributions

• Bonuses and commissions

• Temporary staff and locums

As long as the remuneration is commercially reasonable and wholly for the business these costs are normally deductible in full.

Training and professional development

Training costs are generally deductible where they maintain or improve existing skills rather than create a new trade.

For law firms this often includes:

• Continuing professional development courses

• Legal updates and seminars

• Regulatory compliance training

• Practice management training

Costs relating to acquiring an entirely new qualification may be more problematic and require careful review.

Professional subscriptions and regulatory fees

Professional standing is essential for solicitors. Many related costs are tax deductible.

Common examples include:

• Practising certificate fees

• Regulatory levies

• Approved professional body subscriptions

• Professional indemnity insurance

These costs are normally allowed because they are a condition of carrying on the practice.

Professional fees and advisory costs

Law firms frequently incur costs for advice and support. These are often deductible provided they relate to ongoing business operations.

Allowable costs typically include:

• Accountancy fees

• Bookkeeping services

• Tax compliance and advisory fees

• Legal advice relating to the firm

• HR and employment advice

One area that requires care is fees relating to the acquisition or sale of the business, which may be capital in nature.

Insurance costs

Insurance is a necessary expense for managing risk. Most insurance premiums are deductible.

These include:

• Professional indemnity insurance

• Employers’ liability insurance

• Public liability insurance

• Office contents insurance

• Cyber and data protection insurance

The key is that the policy must relate to business risks rather than personal cover.

IT systems and software

Modern law firms rely heavily on technology. IT costs are generally deductible and often substantial.

Typical deductible expenses include:

• Case management software

• Time recording and billing systems

• Accounting software

• Cloud storage and data services

• Cyber security tools

Depending on the nature of the purchase some costs may qualify for capital allowances rather than immediate deduction, but relief is still available.

Office equipment and furniture

Office equipment is another common area of expenditure.

This includes:

• Desks and chairs

• Computers and laptops

• Printers and scanners

• Telephones and headsets

Smaller items are often treated as revenue expenses. Larger purchases are usually claimed through capital allowances.

Marketing and business development

Marketing is a legitimate business expense provided it is incurred wholly for the firm.

Allowable marketing costs often include:

• Website development and hosting

• Search engine optimisation

• Online advertising

• Print advertising

• Sponsorship related to the business

Entertainment of clients is not deductible, which is an area where firms sometimes get caught out.

Travel and subsistence

Travel costs are deductible where journeys are wholly and exclusively for business purposes.

Common allowable travel expenses include:

• Train fares for client meetings

• Mileage for business journeys

• Parking and tolls

• Overnight accommodation for work

Meals taken as part of overnight travel are usually allowable. Ordinary day to day meals are not.

Use of home as office

Where a solicitor works from home some costs can be claimed.

This typically includes a proportion of:

• Heating and electricity

• Council tax

• Internet and telephone

The proportion must be reasonable and reflect actual business use. Overclaiming here is a common trigger for HMRC queries.

Telephone and internet costs

Business communication costs are generally deductible.

This includes:

• Business phone lines

• Mobile phone contracts used for work

• Broadband used for the practice

Where a line or contract has mixed use only the business element should be claimed.

Client related costs and disbursements

Costs incurred on behalf of clients may be deductible depending on how they are treated.

These include:

• Court fees

• Counsel fees

• Expert reports

The tax treatment depends on whether the firm bears the cost or recovers it from the client. Proper accounting treatment is essential here.

Bank charges and finance costs

Financial costs are often overlooked but are usually deductible.

These include:

• Bank charges

• Transaction fees

• Interest on business loans

• Overdraft interest

Penalties and fines are not deductible.

Bad debts

Where a client fails to pay and the amount is written off this is usually deductible.

The debt must be genuine and previously included as income. Proper documentation should be retained.

Capital allowances and larger assets

Some expenditure is not deducted immediately but still attracts tax relief.

This includes:

• Major IT purchases

• Office fit out

• Vehicles used for business

Relief is given through capital allowances which can still provide significant tax savings.

Expenses that are not tax deductible

Understanding what cannot be claimed is just as important.

Common non deductible items include:

• Client entertaining

• Fines and penalties

• Personal expenses

• Political donations

• Personal clothing not required for work

Trying to claim these increases risk without reward.

LLPs companies and sole practitioners

While the principles are similar the way expenses flow through the tax system differs depending on structure.

For example:

• LLP members are taxed on profit shares

• Companies deduct expenses before corporation tax

• Sole practitioners report expenses in their Self Assessment

An accountant ensures the correct treatment for the firm’s structure.

Record keeping and evidence

Claiming expenses without evidence is risky. HMRC expects firms to keep records that support deductions.

This includes:

• Invoices and receipts

• Contracts and agreements

• Bank statements

• Mileage logs

Good records turn legitimate deductions into defensible ones.

Common mistakes law firms make

Over the years I see patterns emerge.

Typical mistakes include:

• Claiming personal costs through the business

• Missing allowable deductions

• Inconsistent treatment year to year

• Poor documentation

These issues often come to light during enquiries rather than at convenient times.

The accountant’s role in maximising legitimate deductions

Accountants help law firms strike the right balance between efficiency and compliance.

This includes:

• Reviewing expense categories

• Identifying missed deductions

• Advising on capital allowances

• Ensuring consistent treatment

• Supporting firms during HMRC reviews

This proactive approach reduces risk and improves outcomes.

Final thoughts

So what expenses can law firms claim as tax deductible. The answer is most costs incurred wholly and exclusively for running the practice, provided they are properly recorded and treated consistently.

From my experience the firms that manage this well are not aggressive or careless. They are organised informed and supported by good advice. Understanding what can be claimed is not about pushing boundaries. It is about applying the rules correctly and confidently.

If you are unsure whether your firm is claiming everything it is entitled to or worried that something may be wrong now is the right time to review it. Getting this right saves tax improves cashflow and removes a major source of unnecessary stress.

You may also find our guidance on How can accountants help reduce a law firm’s tax bill and What financial reports should solicitors review each month useful when reviewing related SRA and accounting obligations. For a broader overview of solicitor accounting and compliance topics you can visit our solicitors accounts rules hub which brings all related guidance together.