Legal Fees

This Overheads code records the cost of legal fees incurred in running the business. As an expense account, it normally carries a debit balance: debit entries increase the balance (recording new costs) and credit entries decrease it (for example, correcting an error or a refund received).

Real-world examples

Small business — routine matter

A solicitor drafting a commercial lease or reviewing a supplier contract — a straightforward professional fee. £600 (£500 net of VAT) is a debit of £500 to 7600 (Legal Fees), a debit of £100 to 2201 (Purchase Tax Control Account), and a credit of £600 to 2100 (Creditors Control Account). One-off and modest.

Business buying commercial property

The solicitor's invoice for a purchase typically bundles the standard-rated legal fee with disbursements — the Land Registry fee, local authority searches — which the solicitor pays out on the client's behalf and passes on at cost. Genuine disbursements meeting HMRC's conditions fall outside the scope of VAT, so a £2,400 invoice made up of a £1,200 fee (£1,000 net, £200 VAT) and £1,200 of VAT-free disbursements has to be split: only the fee element (debit £1,000 to 7600, debit £200 to 2201) gets the normal VAT treatment, while the disbursements are posted without any VAT, often against the cost of the property being acquired rather than to 7600.

Larger company with ongoing employment or commercial legal needs

A recurring monthly retainer for HR and contract support is a predictable, much larger regular cost than the occasional one-off invoice a small business sees. £3,600 (£3,000 net) is a debit of £3,000 to 7600, a debit of £600 to 2201, and a credit of £3,600 to 2100.

Commonly confused with

Because code 7601 (Audit Fees) sits right next to this one in Overheads, it's a common mis-posting target. Code 7600 is specifically for legal fees, while 7601 covers audit fees — similar in nature, but keeping them separate is what makes the overheads section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

An error posting to Legal Fees won't change total overhead spend, but it will distort the overheads breakdown that's usually reviewed line by line each month to spot cost creep.

Other codes in Overheads