Stock valuation for year end

[gogs]

I was wondering if someone could help advise or clarify a few points.

This is relating to used cars, margin scheme but mainly year end figures of stock.

Will try to explain, hoping someone if familiar with a stock book.

It's easy for an accountant just to pick a figure from the book and run with it, what I have found out.

However what is allowed and not allowed.

The stock book is for the purpose of VAT, mainly thats the way I see it, so you pay the correct amount.

So YE might be 165k for example but within that some of that figures are not a true reflection on actual value but they are for how the deals were done.

Example a car comes in a 5000 but is overage and not sold, surely allowed to apply depreciation to that or run with that market value.

Other example is you buy a car at 16k during that tax year, it's retailed and sold for 20k, customer part exchanges a car and you allow a value of 17k so all you have taken in is 3k cash and paid the VAT man 666.

This car that came back in at 17k, is still in stock at year end, what can you value it at, can you deduct the 4k margin you had in the car and give it a 13k value for the purpose of stock valuation for taxation side of things

 

[Scalloway]

You value stock at cost or market value if less.

 

[gogs]

1 accountant said that but what has made me question is I know someone whos books were a mess and when investigated they had to pay for someone with more expertise who had said the stock could be written back when its came back as a part ex and still on the books at year end.

Is that even possible, I know you can adjust stock for example if your selling nuts and bolts but not taking back screws in part exchange.

 

[Bob]

@Scalloway has given you the full answer.
At the year end you should go through your stock book and schedule your unsold vehicles. Always worth checking the forecourt to make sure that your stock book agrees with the actual vehicles
For each vehicle add the cost to you of that vehicle to the costs of any work that has been undertaken on it. If that is less than the current value, then use those costs.
If the vehicle is worth less than your costs, then use the current value
So for some vehicles you will be using cost and for others current value.
Does that help?

 

[gogs]

My stock book is very good, where it falls short is book keeper error and accountant failing to spot something I pick up on in seconds.

I should have checked myself before it went in and usually would, however find it quite poor once I look at it I can see 6 vehicles accounted for that shouldn't have been and its not very hard to see.

They have a folder with sales invoices and a digital stock book if need to cross reference to see if me or a book keeper has made any glaring errors.

It's a common/logical answer, I'm just not sure why someone who had to call in the big guns and paid a lot to do so was allowed to do something that appears to be very different

You mention using cost....

I directly buy 5 vehicles at 10k each, that's simple 50k, you see them in the stock book and the full payments made for them.

However the main question is do they differ when taken in part exchange where you have not actually paid directly, rather made an allowance for the purpose of the deal.

So what we are saying there is no movement on this, I just can't see this person doing it incorrectly when it came during an investigstion which involved costly experts.

 

[Bob]

Have a look at HMRC manual on motor dealers which I think agrees with what has been said

 

[gogs]

This ; http://www.hmrc.gov.uk/manuals/bimmanual/bim52001.htm

 

[gogs]

oops sorry you linked it in, had just hunted that down myself, HMRC are vague at best of times and could there be another manual or is there a loophole I'm wondering.

Just seems strange they did it as I mentioned and were not made to change the error of their ways if its as black and white

 

[Bob]

I think we're agreeing. The stock book reflects the price you paid. The stock value should reflect the current value. So if you allowed £17K in part exchange for a vehicle worth £14K, then for your year end stock for income/corporation tax purposes you should include it at £14K or less if it was worth less at the year end

 

[UK Contractor Accountant]

Why are you overvaluing part exchange vehicles anyway?

Surely the p/ex value is according to your trade guide books (Glasses etc).

If you need to make a deal why are your not discounting the sale price of the vehicle being sold or is there something else going on behind the scenes with the finance on the vehicle?

 

[gogs]

Their take on it was slightly different, on the example given 17k was allowed which was perhaps slightly above trade valuation, not a million miles out.

However their take was more based on when a car comes back like that against another car and HMRC said during inspection they want to know what real money is in the stock.

Car A bought at 16k, fully visible leaving account.
Car A then retailed at 20k

Customer comes to buy and trades in Car B against Car A.

Car B for HRMC record keeping enters stock book at 17k (fairly accurate assumed trade value)

Now that car is not actually costing us 17k is it.

But your saying thats it case pretty much cut and dry when I know someone else has done something else and it's been accepted..

If that's the case way our accountant been doing it means over valuing each year by submitting the lazy option, ie VAT stock book value

 

[gogs]

Why are you overvaluing part exchange vehicles anyway?

Surely the p/ex value is according to your trade guide books (Glasses etc).

If you need to make a deal why are your not discounting the sale price of the vehicle being sold or is there something else going on behind the scenes with the finance on the vehicle?

Why, see the HMRC note, it's the industry and is nothing new, however in my example I have not over valued but there is nothing wrong in doing so.

Sometimes you do discount, sometimes you don't, however when you discount, every man and his dog comes expecting over top whack for their car.

So many find ask strong money and give strong money, the customer probably feels better about it, for a customer its really all about balance to change but many can't see the wood for the trees when you do discount a car and become unrealistic and your unable to deal more often than not

 

[UK Contractor Accountant]

Go back to my question -what's the difference between discounting the sale price of the vehicle and giving the proper value for the p/ex vehicle? Surely you end up with same money and the correct value of car taken in!

I do not understand why car dealers are bumping up the p/ex values as opposed to discounting- don't profess to understand the industry.

 

[gogs]

Go back to my question -what's the difference between discounting the sale price of the vehicle and giving the proper value for the p/ex vehicle? Surely you end up with same money and the correct value of car taken in!

I do not understand why car dealers are bumping up the p/ex values as opposed to discounting- don't profess to understand the industry.

There isn't one firm answer to that, different business models but I gave an answer.

You talk about proper px value, sometimes customers noses get out of joint when they are met with the stark reality of what a car is worth.

Many varying factors, sometimes you have enough margin and just want a deal done so can give the customer that bit more than is the real trade value.

They might expect/demand that bit more so your left either doing an (insert big group here) and telling them to take a hike or if your not big enough like us to piss any potential customer off you sometimes succumb to the deal and they are happy, more chance of repeat business in the future and referals

Also some will not bump up they will want to go back the way with both prices to reduce VAT margin