Richard Grogan: Tax treatment of legal fees

Richard Grogan

Employment law solicitor Richard Grogan of Richard Grogan & Associates explains the tax treatment of legal fees.

The Revenue have issued a new update of part 07-01-28 on the tax treatment of legal fees. These were updated in January 2020.

The Revenue have confirmed that legal fees paid on behalf of an employee will not be subject to the provisions of section 112 or section 113 of the Taxes Consolidation Act 1997 where all of the following conditions are met, namely:

  1. The fees must be what are termed “legal fees”. These are fees due to a member of the legal profession arising from representing the employee or director.
  2. The payment on behalf of the employee or director must represent a full or partial discharge of legal fees incurred by the employee only in connection with:
    1. An investigation/disciplinary procedure instigated by his or her employer;
    2. The termination of his or her office of employment for example to recover compensation for loss of office or employment; or
    3. An action taken by an employee or director against the employer for breaches of employment law by the employer.

It is important to note that legal or other fees incurred on other matters do not qualify for this treatment.

The fees must be paid directly by the employer to the employee’s/director’s legal representative and only having had sight of the invoice relating to such fees, being an invoice issued to either the employee/director or the employer by the employer’s/director’s legal representatives.

Where the payment of legal fees is made under either a Court Order or where a Court Order does not apply under the specific terms of a settlement agreement between the employer and the employee.

The tax treatment of other elements of the settlement, for example chargeable under section 112 or section 123 TCA 1997, or whether they qualify for relief under section 192A TCA 1997, will depend on the specific facts. We would strongly advise anyone dealing with the tax treatment of legal fees to read the relevant Revenue ruling.

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