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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Im UK Self-employed. This is the scenario. 1) I have £10,000

Customer Question

I'm UK Self-employed. This is the scenario.

1) I have £10,000 to invest in the 2014-2015 tax year.

2) I spend £10,000 on buying physical stock in that year. Therefore, writing off £10,000 as business expenses.

3) What happens if I don't sell ANY that that stock in that current financial year?

In the 2015 - 2016 tax year, would I have to sort of "remove" that business expense?
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site. Thank you for your question.

When you buy stock for resale, it remains a balance sheet item until such time that you sell it. You transfer to cost of sales the value of stock that has been sold to match sales with purchases for resale and the difference is reported as gross profit.

Although buying stock is a business expense, you only bring it into the profit and loss account when you sell it.

Example ...

Opening stock = 0
Puchases of stock = 10,000
Stock at year end = 10,000
transferred to cost of sale = zero

I hope this is helpful and answers your question.
Customer: replied 2 years ago.

So just to clarify and to be 100% clear


 


I could buy £10,000 of physical stock in financial year, write it all off and have my income deducted by that much... and even if I didn't sell it the next year, the £10,000 deducted would still be valid ?

Expert:  taxadvisor.uk replied 2 years ago.
Thank you for your reply.

Your understanding is not correct.

You could only write off the value of stock in the year of purchase if you had made a wrong choice in what you bought. Under accounting convention, stock at year end is valued at the lower of cost or net realisable value. If you bought stock that was not appropriate and there was no market for it and it was obsolete then you could write off the value in the year.

I hope this healps

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