Is it £8000 loss or £16000 proft? I am in a mess, please advise.

[sjohnb]

Hello,

Could anybody please give me some advice, clarify my position, or anything to settle my mind. Thank you.

For several years I have sold bits and pieces on e-bay but nothing to take me over £1k per year. I have bought limited edition films, and coins and that sort of thing, selling them off now and then. I have managed to gather quite a large amount of stock but just hoarding it.

In the 20/21 tax year, during lock-down, I started selling more. I ended up selling about £6k of stock, at the same time buying about £14k of new stock. Some of what I sold was bought in past years and some was the new stock.

I realised I was clearly going to have to declare myself a sole trader and do a tax return. They way I understood it, stock is an expense and so for this year I thought would make a loss of about £8k. I thought I could then carry this loss on in future years until I make a profit. I never thought I would sell enough to have to pay tax.

Now I have read that stock should be declared as a profit. Is this right? Even though the cost of my stock is greater than my profit?

My figures are approximately.

Sales - £6000
Cost of stock sold about - £2000 (much of it was stock bought years ago, so I can not do anything about that)
New stock - £13000
Other expenses - £800

Would I really have to declare a profit of about £16000?

I imagine I might need to get an accountant to help with my, far more complicated than I thought situation, but any advice, thoughts would be much appreciated.

Thank you.

 

[japancool]

How did you fund the purchase of that £13000 worth of stock? And is that purchase value, or retail value?

 

[Energise Accounting]

So, the £2000 stock you bought years ago would be opening stock.

New stock would be purchases £13000.

Closing stock figure?

opening stock+purchases-closing stock= cost of sales

£6000 - COS - £800 expenses = Profit/Loss


However, I am sure you have missed out many other transactions.

 

[sjohnb]

How did you fund the purchase of that £13000 worth of stock? And is that purchase value, or retail value?

From redundancy pay and savings. The value is purchase value, which at the time was retail value. Generally I buy a small number of many limited editions to sell once the value has gone up. I also flip a few things bought in ridiculously cheap sales.

 

[sjohnb]

So, the £2000 stock you bought years ago would be opening stock.

New stock would be purchases £13000.

Closing stock figure?

opening stock+purchases-closing stock= cost of sales

£6000 - COS - £800 expenses = Profit/Loss

However, I am sure you have missed out many other transactions.

Thanks for the reply. So basically:

Income - cost of good sold - expenses = Profit

This is simpler in my case as I only sold about 70 items.

Also, is there any date limit on when opening stock was purchased? If I bought a set of blu-rays 10 years ago, can I still take the cost then, off the sales price now?

If so I assume I would need to have proof of purchase price?

Thank you

 

[Energise Accounting]

It is reasonable to assume any stock bought for re-sale has a cost. It would depend on the item what cost price you would use. for E.G. A piece of art may of went up in value. However, a car has certainly gone down in value.

 

[Paul Kelly ICHYB]

YOu are going to get some great advice here (and already have), but, in my experience, there will always be bits that you forget to mention or do not know to mention about!

The best way to resolve this is spend some time with an accountant. If you get the tax return wrong, it could cost you in fines. Paying a couple of hundred quid for an accountant to straighten this out might be a good investment (and is a cost to the business!).

There are some very experienced accountants here, on the forum.

 

[sjohnb]

It is reasonable to assume any stock bought for re-sale has a cost. It would depend on the item what cost price you would use. for E.G. A piece of art may of went up in value. However, a car has certainly gone down in value.

I see, thank you.

So if I bought a blu-ray for £40 10 years ago, before I set up a business, and I have an e-mail confirming this, (or even not). I can just go with the original retail price as my cost?

 

[Paul Kelly ICHYB]

The cost is the price you paid!

 

[Energise Accounting]

I see, thank you.

So if I bought a blu-ray for £40 10 years ago, before I set up a business, and I have an e-mail confirming this, (or even not). I can just go with the original retail price as my cost?

If you bought a Blu-ray from a shop 10 years ago unless it is a collector’s item. one could assume you did not buy it for re-sale. Have you used some of these items? Lots of questions need answering. As Paul has said engage an Accountant.

 

[sjohnb]

I had more than one of them and they remained sealed so I would probably struggle to claim they were my own possessions.

I understand an accountant would offer advice and make useful suggestions, but when my profit is about £2500, paying for an accountant is a large proportion. Also I don't really have the need to find ways to make small reductions in my tax liability as I am such a long way from the tax threshold anyway.

I really just want to submit my own return in an accurate way that won't cause me problems.

 

[gpietersz]

I understand an accountant would offer advice and make useful suggestions, but when my profit is about £2500, paying for an accountant is a large proportion. Also I don't really have the need to find ways to make small reductions in my tax liability as I am such a long way from the tax threshold anyway.

I assume that if you have bought £13k of stock you are expecting to increase your sales and profits next year. An accountant can advise you on how to handle that: minise tax, and what records to keep.

The reason I bring up record keeping is that it sounds to me that your sales are a mixture of personal sales and trade sales. The tax position is different and you probably need to seperate them. You might find this thread helpful about the personal assets being sold: https://www.ukbusinessforums.co.uk/...m-exist-for-one-off-additional-income.413605/

On the other hand as you have no tax to pay either way, I suppose there will be no consequences if you get it wrong. There should be people here who can confirm or rebut that.

 

[NicoJ]

If you used the cash basis then you would record a £8k loss. This may not be advantageous to you however so I echo the advice if others to speak to an accountant and get their advice.

 

[Manoj@backofficemadeeazy]

Hi,

Cost of sales = closing stock + purchase - opening stock

Revenue/income – Cost of Sales-other overheads/expenses= Profit

Closing stock is a deductible expense in the tax returns.

However we need more information to assess your situation and give you a true and fair feedback of what you exactly need to do, please feel free to call one of our accountants on 02081917680/07973592184 for a free consultation.

Best Regards,


Manoj Devadas

Accountant

Back Office Made Eazy Accountants

 

[sjohnb]

I assume that if you have bought £13k of stock you are expecting to increase your sales and profits next year. An accountant can advise you on how to handle that: minise tax, and what records to keep.

A fair assumption, but I have decided to drip the stock back on to e-bay, not making more than £5k profit a year. I will always be below the tax threshold. I will buy very little extra stock and that will be that.

There are not really many personal sales, but if there obviously are I will just leave them out of the calculations I think, or just not worry.

Cheers.

 

[Scalloway]

Cost of sales = closing stock + purchase - opening stock

Revenue/income – Cost of Sales-other overheads/expenses= Profit

Closing stock is a deductible expense in the tax returns.

Not Correct!

It should be

Cost of sales = opening stock + purchase - closing stock

Closing stock is not a deductible expense. It goes on the Balance Sheet to be added to purchases next year.

 

[NicoJ]

A fair assumption, but I have decided to drip the stock back on to e-bay, not making more than £5k profit a year. I will always be below the tax threshold. I will buy very little extra stock and that will be that.

There are not really many personal sales, but if there obviously are I will just leave them out of the calculations I think, or just not worry.

Cheers.

https://www.gov.uk/simpler-income-tax-cash-basis

You can't get simpler than this, no need to think about closing/opening stock at all. I did post that you could use cash basis earlier but it seems to have been overlooked. If you want to DIY, then this is probably the best option for you. It might not be the most tax efficient however.

 

[gpietersz]

A fair assumption, but I have decided to drip the stock back on to e-bay, not making more than £5k profit a year. I will always be below the tax threshold. I will buy very little extra stock and that will be that.

Do you not have any other taxable income - or little enough that the total is below the tax and NI thresholds (or atleast below the £9.5k threshold for class 4).

 

[sjohnb]

Do you not have any other taxable income - or little enough that the total is below the tax and NI thresholds (or atleast below the £9.5k threshold for class 4).

Nope, well a little on savings, but nothing worth mentioning. I stay at home and look after the children with a little bit of e-bay tinkling. I do contribute to a pension so that would be deductable, and it is really what I want to use my e-bay profits for.

 

[Spur Support Services]

Cash basis as per @NicoJ can be used, generates a loss, which can only be carried forward against future profits and is probably the easiest option for you to self service.
However, using cash basis severely restricts the use of trading losses, should any arise, but if you have no other income from part time employment etc, then the restriction may have only a limited effect.

Accruals basis, where you account for the stock as per @Scalloway is also an option and careful consideration of other costs that you may have overlooked may produce a small loss, but if you have no other income, it's doubtful there is much value here.

I would say that if you are a stay at home married parent, and your partner is a basic rate tax payer (taxable pay under £50k) then look to ensure that you have transferred your 10% of your personal allowance. (this can be backdated to all tax year since 5 April 2017 if relevant).
Have a look at https://www.gov.uk/marriage-allowance