Allowable Expenses for Accountant professionals

Understanding what you can and cannot claim is critical for reducing your tax bill effectively. A common misconception amongst accountant businesses is that any cost is business-related. HMRC have strict "wholly and exclusively" rules.

Core Allowable Expenses

Here is a definitive list of expenses that are typically allowable for sole traders and limited companies in the accountant sector:

What you cannot claim

Be careful. HMRC scrutiny on accountant expenses is increasing. Common errors include:

• Client Entertaining: Taking a client for lunch is not tax-deductible for Corporation Tax purposes.
• Gym Memberships: Unless it's a specific requirement (like a stunt performer), general fitness is a personal benefit in tax law.
• Clothing: Suits and office wear are not deductible because they provide "warmth and decency". Only branded uniforms or safety gear count.
• Parking Fines: Even if incurred on a business trip, fines for breaking the law are never allowable.

VAT & MTD for Accountant

Most accountant businesses interact with VAT once they hit the £90,000 taxable turnover threshold. However, with MTD for VAT already in force, all VAT-registered businesses must keep digital records and submit returns using MTD-compliant software.

Should your accountant business register voluntarily?

Even if your turnover is below £90k, registering for VAT can be beneficial:

• Recoup VAT on Startup Costs: If you buy expensive equipment (computers, tools) for your accountant work, claiming back 20% can be a huge cashflow boost.
• Credibility: Being VAT registered can make your business appear larger and more established to corporate clients.
• B2B Clients: If your clients are other businesses (B2B), they usually won't mind you charging VAT as they can claim it back.

The Flat Rate Scheme (FRS)

For accountants with low expenses, the Flat Rate Scheme might simplify things. You pay a fixed percentage of your turnover to HMRC and keep the difference. However, "Limited Cost Trader" rules have made this less attractive. Our team will calculate whether FRS or Standard VAT is better for your specific situation.

Making Tax Digital (MTD) Explained for Accountant

Making Tax Digital (MTD) is the biggest shake-up of the UK tax system in a generation. It is not just about using a computer; it is about a fundamental shift in how HMRC requires you to keep records and report income. For accountant professionals, this means the end of the annual "shoebox of receipts" panic and a move towards real-time, digital record-keeping.

Why MTD IT (Income Tax) Matters to You

Under MTD for Income Tax Self Assessment (MTD ITSA), sole traders and landlords earning above the threshold (currently set to £50,000 from April 2026, and £30,000 from April 2027) will no longer file a single annual Self Assessment tax return. Instead, you will be required to:

• Keep Digital Records: You must use compatible software (like Xero, QuickBooks, or FreeAgent) to record every single business transaction. Paper ledgers and Excel spreadsheets (without bridging software) will no longer be compliant.
• Submit Quarterly Updates: You must send a summary of your income and expenses to HMRC every three months. This is 4 times a year, plus an End of Period Statement (EOPS).
• Final Declaration: After the end of the tax year, you must submit a final declaration to confirm your income and claim any reliefs, essentially replacing the current tax return.

For accountant businesses, which often have irregular cash flow or project-based income, this shift requires a disciplined approach to bookkeeping. The days of backdating an entire year's worth of invoices in January are over.

The "Tax Gap" and Compliance

HMRC's motivation is closing the "Tax Gap"—the difference between tax owed and tax collected. They believe manual errors cost the exchequer billions. By forcing digital links between your bank and your tax return, mathematical errors are eliminated. However, for a busy accountant, the risk is now procedural penalties for missed deadlines or improper digital links.

Choosing MTD Software for Accountant

Not all accounting software is created equal. The accountant industry has specific needs—whether that's project tracking, retainer billing, or handling expenses on the go. As a TaxDigital client, we don't just dump software on you; we set up a bespoke dashboard tailored to your workflow.

Your Critical Tax Calendar

Missing a deadline incurs immediate fines. For a busy accountant, it's easy to lose track. With TaxDigital and MTD, you'll get automated reminders 1 month, 1 week, and 1 day before due dates.

Key Dates for 2026-2027

Advanced Tax Planning for Accountant

Beyond basic compliance, our role is wealth preservation. High-earning accountant professionals often overpay tax simply by not structuring their affairs efficiently.

1. Optimised Salary/Dividend Mix

   For Ltd Company directors, taking a small salary (up to the NI threshold) and the rest as dividends saves thousands in Tax & NI.
   Essential
2. Company Pension Contributions

   Your company can contribute up to £60k/year into your pension tax-free. This reduces Corporation Tax and builds personal wealth.
   Wealth
3. Electric Vehicle (EV) Scheme

   Get a Tesla or Polestar through your business with 2% Benefit in Kind (BiK). The company pays for the lease, insurance, and charging.
   Perk
4. Marriage Allowance

   If your spouse earns less than the Personal Allowance, transfer £1,260 of their allowance to you to reduce your tax bill.
   Family

How to Switch Accountants (The Easy Way)

Many accountant professionals stay with bad accountants because they fear the hassle of switching. The reality is simple.

MTD Glossary for Accountant

Bridging Software

A tool that links non-compatible software (like spreadsheets) to HMRC systems. We generally advise full cloud accounting instead.

Digital Link

A mandatory electronic transfer of data between software programs. You cannot "copy and paste" figures for your VAT return anymore.

MTD for ITSA

"Making Tax Digital for Income Tax Self Assessment". The new regime for sole traders and landlords with income over £50k. (Currently delayed to April 2026).

Quarterly Update

A summary of business income and expenses sent to HMRC every 3 months. Not a tax return, but a report of activity.

EOPS

"End of Period Statement". A final declaration made after the tax year ends to finalize tax liability and claim reliefs.