Tax return query - sole trader ceasing trading and taking residual stock for own use.

Model500

Hi

I have been advising my mum (in an unoffical capicity) regarding her final self-assessment tax return. She has been self-employed (and partly employed) for the last six years and ceased trading on 05/04/2011.

I have carried out a full review of her books and it appears she has approx £600 worth of stock, purchased in first year of trading which, which was never accounted for by her bookkeeper at the time. It looks like the bookkeeper treated this part of the stock, as a balance sheet item for that year.

So, assuming I don't uncover anything to the contrary in her files, would the cost of this stock still be able to be factored into her final return as cost of sales?

In addition, at close of business on 05/04/2011 she had approx £650 worth of stock (at original cost value, including the £600 stock mentioned above) and wants to treat the stock as taken for personal consumption.

Therefore, I have advised (pending advice sought elsewhere) to enter this figure into the box marked 'stock taken for personal use' on the online tax return. Is this technically correct?

Any advice would be much appreciated.

T.C.

I suppose it is technically correct, but I would be inclined to put it down as cost of sales (ie of no further use to anyone). I suppose it depends what the stock is and how honest you want to be.

Model500

Hi TC

I just want to state the accounts correctly, regardless of outcome.

So am I correct in the following treatment of stock?

Cost of Stock not previously claimed as Cost of Sales, £600, can be declared as Cost of Sales, despite fact they were purchased over 5 years ago?
Effect - reduces Profit.

Residual stock upon ceasing trading, £650 (valued at cost) to be declared as Stock taken for personal use.
Effect - reduces Cost of Sales - increases Profit and therefore increases Tax payable.

Could you please confirm?

I could do with an answer in case my mum needs to revise her online tax return before end of tomorrow.

Thanks

T.C.

Sounds fine to me.

deanshepherd

Stock taken for personal use has to be at market value not cost.

Monsoon

deanshepherd wrote: »

Stock taken for personal use has to be at market value not cost.

But it's not taken for personal use - it's cessation - I would have thought that makes a difference?

Model500

Thanks T.C. and others.

My Mum might lose out slightly by valuing at cost but that's what I'm going to advise her to do. It's really hard to value homeopathic supplies which have been around a few years, so market value could be anything from £0 to the full price. Neither she nor I have the time to do the research!

Taxman wins by an unknown margin, nothing new there then lol.

PGM

Model500 wrote: »

I have carried out a full review of her books and it appears she has approx £600 worth of stock, purchased in first year of trading which, which was never accounted for by her bookkeeper at the time. It looks like the bookkeeper treated this part of the stock, as a balance sheet item for that year.

If it was never accounted for as a purchase, you should be able to correct the balance sheet entry by taking it out and then the stock was never owned by the business?

deanshepherd

Monsoon wrote: »

But it's not taken for personal use - it's cessation - I would have thought that makes a difference?

It's either been taken for personal use or it hasn't. Only the OP can answer that one.

The situation is similar to assets being taken by an owner on cessation.