Outsourced accounting alongside an in-house accountant: when the tax authority disallows the cost

You have an accountant on the payroll, or even a whole accounting department, yet you still need an outsourced provider for VAT reporting, HR records or representation before the tax authority. The fear is that the tax authority will treat the cost of that outsourcing as fictitious for the single reason that you already employ an accountant. The fear has grounds, but the law is on the side of business provided the contract is drawn up properly.

The essentials in 30 seconds

• Law No. 996-XIV expressly provides for four ways of organising accounting, and none of them rules out the others.
• Having an accountant or a chief accountant on the staff does not deprive a company of the right to contract with an individual entrepreneur (FOP) or with an outsourcing firm.
• The tax authority disallows costs not because forms of accounting have been combined, but because the reality of the business transaction has not been proven.
• The Supreme Court and the Third Administrative Court of Appeal in case No. 160/25897/21 confirmed that accounting services supplied by an individual entrepreneur or a company while an accountant is on the staff are a lawful expense item.
• Marketing and intermediary services in the same case were not upheld, because the claimant failed to prove that those transactions were real.
• Itemise the services in the contract and sign an acceptance certificate at the end of every period.
• Draw a written line between what the in-house accountant does and what the outsourcer does.

Does the law prohibit combining an in-house accountant with outsourcing?

Article 8 of the Law of Ukraine "On Accounting and Financial Reporting in Ukraine" No. 996-XIV gives a company four options for organising its accounting: create an accountant position on the staff, engage a self-employed specialist registered as an individual entrepreneur, conclude a contract with a centralised accounting unit or an outsourcing firm, or have the manager keep the accounts personally. The law does not say "choose one option". The company selects the form itself. And the law does not prohibit combining a staff position with an outsourcing contract.

The Third Administrative Court of Appeal confirmed this by its ruling of 29 January 2026 in case No. 160/25897/21 (Admotis LLC v. the Main Directorate of the State Tax Service in Dnipropetrovsk Oblast). The panel of judges stated directly that the existence of an accountant or chief accountant position on the staff does not deprive a company of the right to conclude civil law contracts with a business entity operating in the field of accounting. Combining forms of accounting is not in itself a violation.

If you are still designing the accounting model for a group of companies, look wider: in Internal outstaffing: when a spin-off works and when shared services do we explained how to structure internal service functions without a reclassification risk.

On what grounds does the tax authority disallow outsourcing costs?

The tax authority does not question the fact that the contract was concluded. What it challenges is the reality of the business transaction and its business purpose, in other words whether the service was actually supplied and whether it served a business purpose.

The basis for recognising the cost here is clause 44.1 of Article 44 of the Tax Code of Ukraine: accounting is kept on the basis of primary documents, and reporting figures may not be produced without such documents. The corporate income tax base is determined under subclause 134.1.1 of clause 134.1 of Article 134 of the Tax Code, through the financial result adjusted by the differences set out in the Code. A reasonable economic reason, otherwise known as business purpose, exists under subclause 14.1.231 of clause 14.1 of Article 14 of the Tax Code where the transaction is intended to produce an economic effect, namely growth or preservation of the taxpayer's assets, or the creation of conditions for that in the future.

Can the tax authority simply assert that you do not need an outsourced accountant because you have one on the staff? No. The controlling authority has to prove either that the transaction was fictitious, or that the cost has no connection with business activity, or that primary documents are missing. The mere existence of a staff position is not a ground that the law recognises for disallowing a cost.

It is worth noting that business purpose is defined fairly narrowly in tax legislation and relates to transactions with non-residents and to transfer pricing. The Ministry of Finance keeps to the same narrow approach. During an actual tax audit, however, the logic of business purpose is applied to domestic transactions as well, simply by way of the link with business activity. How to evidence it in practice is set out in Business purpose in transactions with non-residents.

What the court decided in the Admotis LLC case

Following an audit of the years 2017 to 2020, the Main Directorate of the State Tax Service in Dnipropetrovsk Oblast assessed UAH 633,205 of corporate income tax against the company, having refused to recognise the cost of services supplied by individual entrepreneurs: marketing, cleaning, information, accounting and intermediary services, together with the development of the "Sklad" (Warehouse) software.

Important. By its ruling of 5 June 2025 the Supreme Court divided these transactions into two groups. The claimant lost on the marketing and intermediary services, because the courts found the reality of those transactions unproven. On the accounting services, the cleaning services and the software development, the Supreme Court found the conclusions of the lower instances unsubstantiated and remitted the case for fresh consideration.

On the fresh hearing the Dnipropetrovsk District Administrative Court, and after it the appellate court, cancelled the assessment in the part amounting to UAH 423,143. The outcomes broke down as follows:

Type of services	Supplier	Upheld by the court	Decisive reason
Accounting	Two counterparties	Yes	Detailed acceptance certificates, no objections to the primary documents, Article 8 of Law No. 996-XIV permits combination
Cleaning	Two counterparties	Yes	Connected with the specific nature of the business (pharmacy premises), supported by reports
Development of the "Sklad" software	Individual entrepreneur	Yes	The tax authority did not dispute the reality of the transaction, the dispute concerned only the accounting treatment of the cost
Marketing	Individual entrepreneur	No	Reality and business purpose not proven
Intermediary	Individual entrepreneur	No	The same

How to draw up an outsourcing contract so that the costs are not disallowed

I recommend setting out a specific list of services in the contract: keeping accounting and tax records, preparing statutory reports, representation before state authorities, VAT reporting in M.E.Doc, rather than confining yourself to the general phrase "accounting services" with no further detail.

A case from practice

At the end of 2019 a trading company "dismissed" three accountants, subsequently registered them as individual entrepreneurs and concluded accounting services contracts with them. In 2024, in the course of a documentary audit, the State Tax Service questioned costs of approximately UAH 600 thousand and also sought to reclassify the relationship with the individual entrepreneurs as employment. The company succeeded in defending both the civil law nature of the relationship with the suppliers and the cost of the services, since the company's accounting was in fact being maintained, reports were being filed and so on.

The example above is not universal. The company obtained a favourable judgment in that case largely because there were no other accountants at the company and the work was being done by someone. The quality of the primary documentation in the case described was not high. With an accountant on the staff, and all the more so with an entire accounting department, defending the costs would have been harder. We therefore strongly recommend that you do not confine the subject matter of the contract to general wording, but set it out in detail by type of service, scope and similar parameters, and that you draw up detailed acceptance certificates for the services supplied.

I recommend signing an acceptance certificate at the end of every period, describing the services actually supplied, rather than confining yourself to a single certificate for the whole year. A series of regular certificates works as evidence that the service was systematic rather than a one-off fictitious transaction.

I recommend separating the functions in writing: what falls within the duties of the in-house accountant and what has been delegated to the outsourcer. This can be done by issuing an order, a job description or an annex to the employment contract, and by not duplicating the same tasks between in-house accountants and external suppliers. Such duplication is the tax authority's first argument in favour of fictitiousness: why pay twice for one function?

Owner-level control over the accounting function is a separate task — see How an owner can control the accounting function without diving into details.

Which documents confirm that the services were real

First, a contract with a clear specification. Second, acceptance certificates for the services supplied for each period, with a detailed description of the scope of services. Also useful: confirmation that reports were filed with the controlling authorities, and correspondence on specific assignments. Access granted to the outsourcer, or to a specialist of the outsourcing firm, to the taxpayer's electronic cabinet or to the accounting software is likewise a fact that confirms actual performance rather than a paper formality.

Important. None of these documents on its own guarantees that the cost will be protected. The court assesses the whole body of evidence: whether the subject matter of the contract is consistent with the real needs of the business, whether the price of the services corresponds to the volume supplied, and whether the primary documents contain material defects.

The line between lawful tax saving and a risky arrangement is thin — we mapped it in Lawful tax saving or evasion: where the line runs.

Frequently asked questions

Is it possible to keep an accountant on the staff and have an outsourcing contract at the same time?

Yes. Article 8 of Law No. 996-XIV expressly provides for several forms of organising accounting at once, and the law does not limit a company to one option.

Does the tax authority disallow costs automatically where an in-house accountant and outsourcing are combined?

No. The ground for disallowing a cost is unproven reality of the transaction or absence of a business purpose, not the fact of combining forms of accounting.

What has to be proven in the event of an audit?

The reality of the business transaction: acceptance certificates, the specification of services, the connection between the cost and the company's activity, and the economic effect of the transaction.

Is it risky to backdate a contract?

Yes. The date of the contract must precede the dates of the acceptance certificates. A discrepancy in dates is a standard argument used by the tax authority in favour of fictitiousness.

Is it possible to delegate only part of the functions to the outsourcer rather than the entire accounting?

Yes, and that approach is precisely what reduces the risks: the more clearly the tasks of the in-house accountant and the outsourcer are separated, the fewer grounds there are for an allegation that costs have been duplicated.