Date of commencement of trade

[IloveParis]

I have a self employed client who manufactures clothing. Not LTD but is registered for VAT. Started manufacturing in January this year but does not expect to sell anything until later this year as he needs to build up stock. vAT returns have all been repayment returns. When does his trade start for self assessment purposes. The year end will be 31st March so for the 3 months to 31st march 2011 will he have been trading or not? His profit would be nil as the costs would be offset by stock. Would appreciate advice.

 

[Mitchells Bristol]

The trade would have commenced when the manufacturing process began, and therefore the figures will need to be returned for the 2010/11 tax year.

Were there no other administrative costs that would create a loss for this period - that could then be offset against other income or carried back (motor costs, travel expenses, postage, stationery, legal, accountancy?)

 

[David Griffiths]

The trade does not start just because there are expenses incurred in preparation. The trade starts when you actively start seeking sales - my usual example is to take a shop. You can spend money doing up the shop, making goods to sell and training staff. The trade does not start until you open the doors and invite customers in.

It's the same with any other business - what is the date that you metaphorically "open the doors for business?"

That doesn't mean the date of the first sale - after all a shop can be open all day and not sell anything. It's the day that you actually seek customers, and would be ready to sell if you found one.

 

[Mitchells Bristol]

David - would there not be an argument that as the trader has started manufacturing clothes with the intention of reselling these at a higher price then he clearly has the motive to realise a profit on this venture.

I appreciate that profit motive alone does not indicate the existence of a trade, but it is certainly a strong indicator and based on the limited information available I would certainly summise that his intention is to sell the clothing for a profit.

I would certainly look to argue this point if there are other costs associated to 31 March 2011, which would enable the client to claim loss relief.