Many companies and entrepreneurs need legal assistance or consultations. Especially if there is no own legal department – then it is essential that the texts of contracts and agreements are viewed by a third-party specialist. If a company gets involved in litigation, legal assistance may be required even if there are full-time lawyers. In any case, the company or sole proprietor pays for the help of an outside expert, and the services of a lawyer should be recognized in accounting in a certain way.
The first condition: to recognize the lawyer’s assistance in expenses, evidence that show that the services were indeed provided is needed, and they were needed by the company. As usual, a contract is signed between a lawyer and a principal, which can be both individual and company, and this document is mandatory, otherwise, regulatory authorities may have questions about these expenses during review. It is not possible to include legal assistance in the expenses if it was provided without a contract.
A contract is considered concluded when the parties agree on all the essential terms for the provided assistance. However, there are several conditions and situations when this document may be invalidated. To prevent this from happening, the following must be specified in the contract:
- information about the parties,
- confirmation of the lawyer’s right to practice,
- the subject of assistance and costs,
- the procedure for compensation of costs and liability.
After the execution of the contract, the parties must sign an act confirming the acceptance of the assistance provided so the services of a lawyer can be reflected correctly in accounting records. The act is a form of primary accounting, based on which expenses are recognized. There is no unified form of this document, so it is settled in free form.
Accounting of lawyer’s services: inclusion in expenses
If legal assistance does not relate to the main activity of the organization, legal assistance can be recognized in the accounting as part of other expenses. But not everything is as simple as it seems. Company will be able to recognize expenses when calculating income tax only if several requirements are met:
- validity and economic justification;
- documentary confirmation of the received assistance;
- focus on earning income.
To justify company’s expenditures, their assessment must be expressed in monetary form. Furthermore, documented expenditures are understood as those that are verified by documents drawn up in accordance with the requirements of the law. It is obligatory that they are drawn up in accordance with the legislation of the Russian Federation or business practices that are accepted in a foreign country (if the contract was concluded in other countries).
Expenses from accounting point of view are any expenses that are aimed at financing the commercial activities of an enterprise. Therefore, it is necessary to register as a lawyer’s assistance in accounting records in such a way that the connection between legal assistance and the company’s income is obvious.
The justification of expenditures is determined based on some circumstances. For example, the outcome of the dispute, the formed prices for legal assistance in a particular region, the scope of duties of a representative in a judicial instance are taken into consideration.
The main conditions for expenditures accounting include following:
- The amounts must be accounted for at the cost specified in the contract.
- The price is accepted for accounting after receiving the services, which must be verified by a free-form act.
- The cost of legal assistance is recognized as part of other expenses for the period of its actual implementation.
- For accounting, it is important to have visual evidence that legal assistance was provided directly to the organization, and not to its individual representatives. The costs of legal advice for officials, including the director, cannot be recognized if these consultations did not directly relate to the activities of the enterprise. The costs of considering administrative claims against managers and responsible employees are not paid from the company’s budget and must be repaid by the employees themselves.
From the point of view of taxation, the costs of legal assistance are included in non-operating expenses. They are recognized when determining the tax base for income tax and the single tax that is paid under simplified tax system (USN).
Accounting and tax accounting of lawyer’s services
The cost of legal assistance must be confirmed by the contract and the services should be detailed for the regulatory authorities to have no issues during the inspection. Streamlined wording in the accounting records will inevitably cause dissatisfaction by the authorities, since it is impossible to understand what kind of assistance the lawyer provided. In addition, if the expenditures are compensated by the respondent after litigation ended, the amount must meet the requirement of reasonableness and comparability with the market value of similar services.
In addition, legal assistance may be required even if there is a full-time lawyer. In such a situation, it is necessary to prove that the must-have assistance of an outside expert. The functions of a full-time employee should not coincide with the assistance that you receive from a lawyer. It is necessary to clearly define the job responsibilities of a full-time employee, as well as to exclude the possibility of representing the interests of the company in court.
Reimbursement of costs by the losing party
The expenditures of the litigation, including the cost of legal assistance, may be awarded to the losing party. The court will set a deadline for repayment of the debt. The respondent will have to repay the amount in full or in proportion to the amount of satisfied claims.
Special thing about reimbursement of expenses is the ability to present them only if you can prove their value. In the judicial process, the costs of legal assistance are allocated for a set instance. The services must be paid for, and the court should then be provided with a receipt. You can claim compensation only during the time while the litigation is in progress, otherwise you will have to file a separate claim.
Compensation for other legal expenses
While executing the orders of their clients, lawyers bear the associated costs: for example, cost of transportation, the cost of attracting specialized experts for consultation, the order of expertise or evaluation, and so on.
Payment of additional costs of the lawyer is carried out by indicating their admissibility and the procedure for compensation in the contract. All the indicated expenses will need to be proofed as relatable to the order being provided. If a lawyer conducts several cases and assignments at once, it will be necessary to allocate a share of expenses for each of them.
VALEN specialists have extensive experience in accounting and tax accounting of lawyers’ services. We provide assistance to large and small businesses, individual entrepreneurs and international corporations. To order services or consult with specialists, dial our number: +7 (495) 7-888-096! We are also waiting for you in our office in Moscow.