BTAX Adjusting trading profits / taking trading goods out of the business for private use

MyScienceProject

Hi there AAT student members

I am currently studying Business Tax and as it is a self-study module I have no access to professional tuition at the moment.

I have been learning about adjusting trading profits for sole traders, specifically about taking trading goods out of the business for private use and how they are dealt with in an adjusted trading profits computation.

Is there anyone who can reassure me that my understanding of this topic is correct (or not correct)?

Firstly, I have learnt that taking trading goods out of the business for private use is non-allowable expenditure and should be added back to the net profit.

When the cost price of the goods taken out of the business has been deducted from the cost of sales figure on the income statement then the NOTIONAL PROFIT (the profit that the goods would have made if they had been sold normally through the business) is added back to the net profit. The notional profit is calculated as: normal selling price of the goods - cost price of the goods.

When the cost price of the goods taken out of the business is still included in the cost of sales figure on the income statement then the NORMAL SELLING PRICE (the price at which the goods would have been sold normally) of the goods is added back to the net profit.

Questions 6.3 and practice assessment 1, Task 1 in the Osborne workbook (Finance Act 2013) test taking trading goods out the business for private use.

Any replies would be really appreciated

Thank you

amyjayne27

Hi,

Your understanding of goods for private use is correct.

With these questions I found I had to read them carefully, as some say the cost is included, and some say excluded.

If the cost of these goods is INCLUDED in the cost of sales, then you need to add back the SELLING price of these goods.

If the cost of the goods have already been EXCLUDED from the cost of sales, then you only need to add back the difference between the selling price and the cost price, as the cost price has already been added back in effect.

So you always want to add back the selling price of the goods, but it depends if the cost has been included or excluded.

I hope this makes sense!