Tax and SARS knowledge base
Can a business deduct accounting, bookkeeping and tax-consulting fees?
Can a business deduct accounting, bookkeeping, and tax-consulting fees?
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Direct answer
Accounting, bookkeeping and tax-consulting fees can be deductible where they meet the general-deduction requirements in section 11(a), read with section 23(g): they must be actually incurred in producing the company’s income, not be capital in nature, and be laid out for purposes of trade. The invoice description, work performed and business purpose matter. A professional fee does not become deductible merely because it was paid from the company bank account.
Recurring bookkeeping, payroll, annual accounts and ordinary tax-return work are often easier to connect to the operating business than advice about acquiring a company, restructuring a shareholder position or resolving a director’s personal tax matter. Each engagement should be classified on its own facts.
What this means in practice
The company should have an evidence trail from engagement letter to invoice, approval, payment and tax computation. A useful file answers four questions: who was engaged, what work was done, which taxpayer benefited, and why was the cost incurred in the company’s income-producing operations?
Invoices are frequently too vague. “Professional services” does not show whether the adviser performed monthly bookkeeping, prepared a company return, advised on a property acquisition or helped an owner with personal estate planning. Ask for an invoice or schedule that separates material services. That makes the bookkeeping classification more accurate and protects the business if SARS requests supporting documents.
The legal distinction between revenue, capital and private expenditure is fact sensitive. A cost that creates or changes the company’s income-earning structure can have a different treatment from the recurring cost of operating that structure. Similarly, a company should not deduct personal tax advice for a director merely because the same accounting firm issued one combined invoice.
Step-by-step
- Read the engagement letter.
Identify the client, scope, deliverables and relevant period. A company should be named as the client for company work. If the engagement covers group companies, directors or shareholders too, the scope should state how fees are allocated.
- Match each invoice to actual work.
Attach work schedules, return references, bookkeeping reports, correspondence or deliverables. For recurring work, retain the service agreement and period covered. For a once-off project, describe the commercial purpose and what changed as a result.
- Identify the beneficiary.
Ask which entity received the service. A group parent, subsidiary, shareholder and director are not interchangeable taxpayers. Charge or recharge work correctly rather than letting the easiest-paying entity claim the whole invoice.
- Test the nature of the cost.
Consider whether it is a recurring operational expense, a capital transaction expense, private expenditure, a fine or penalty, or a mixed cost. Ordinary accounts preparation can be quite different from due diligence for buying a business or advice to establish a new asset structure.
- Allocate mixed invoices.
Where an adviser did both company and personal work, request a split. Keep the basis for allocation. Avoid claiming an arbitrary percentage just because the company paid the invoice first.
- Record and retain.
Post the cost to an account that describes it clearly, retain proof of payment and reconcile it to the tax computation. Material fees should be reviewed before the ITR14 is submitted.
Documents and records to keep
Keep engagement letters, proposals, invoices, detailed work schedules, reports, tax return references, board approvals and proof of payment. For mixed work, retain the allocation calculation and correspondence with the adviser. For transaction work, keep contracts, due-diligence scopes and papers explaining whether the work related to operating income or a capital change.
Important limits and exceptions
This article is not a blanket approval for professional fees. Fees may be wholly deductible, partly deductible, capital, private or disallowed depending on the facts. The treatment of penalties, interest, settlement costs, acquisition costs, litigation and cross-border advice can require separate analysis.
Do not confuse the VAT treatment of an invoice with its income-tax deductibility. Do not deduct a director’s personal tax return, private estate plan or shareholder dispute simply because the company has a business relationship with the adviser.
When to get tailored advice
Get advice where fees are large, relate to an acquisition, disposal, capital raising, restructuring, tax dispute, share transaction or a mixed company-owner engagement. Ask for review before filing if a prior SARS audit queried professional fees.
TaxProof can help organise the engagement and invoice evidence and identify costs that need a specialist classification. We cannot determine a final tax outcome without the complete transaction facts.