Transferring Stock - How much can I claim?

[Katy1980]

Hello all!

I'm in the process of transferring from sole trader to Limited company. I need to calculate how much money I'm owed for the stock. However. I am unsure what I can claim for. Here's an example:

A stainless steel ring!
70p - Wholesale cost (from China)
3.5p - Import Duty
12p - Import VAT
8p - Shipping cost (for example £100 shipping cost with 1250 itens in the package = 8p shipping per item)
93.5p Total cost of product

How much of the above do I bill the Ltd company for? All but the VAT...? (I'm on the flat rate scheme for both sole trader and ltd co - not sure if that's relevant!)

Am I entitled to claim a little more for all the work I've put into obtaining/selling this stock? Or can that side of things be accounted for as part of the goodwill process...?

Also, most of my stock is on a spreadsheet and organised/easy to calculate etc. However, I have a lot of stock I never got around to doing anything with, hence it would take veeeery long to dig out invoices and work out individual item costs.... So, I am allowed to make a reasonable guess what these items cost me?

A final quiestion; I was a sole trader for 3 years and 4 months and never did anything with opening/closing stock at year ends.... I didn't know I needed to, and I don't really understand it all (I have an accountant for the Ltd co, so that won't happen again!) But will it cause a problem that I didn't do any year end opening/closing stock figures as a sole trader? or is that irrelevant/not required for sole traders...? :|

Thanks for your time

 

[taxattack]

Hello all!

I'm in the process of transferring from sole trader to Limited company. I need to calculate how much money I'm owed for the stock. However. I am unsure what I can claim for. Here's an example:

A stainless steel ring!
70p - Wholesale cost (from China)
3.5p - Import Duty
12p - Import VAT
8p - Shipping cost (for example £100 shipping cost with 1250 itens in the package = 8p shipping per item)
93.5p Total cost of product

How much of the above do I bill the Ltd company for? All but the VAT...? (I'm on the flat rate scheme for both sole trader and ltd co - not sure if that's relevant!)

Am I entitled to claim a little more for all the work I've put into obtaining/selling this stock? Or can that side of things be accounted for as part of the goodwill process...?

Also, most of my stock is on a spreadsheet and organised/easy to calculate etc. However, I have a lot of stock I never got around to doing anything with, hence it would take veeeery long to dig out invoices and work out individual item costs.... So, I am allowed to make a reasonable guess what these items cost me?

A final quiestion; I was a sole trader for 3 years and 4 months and never did anything with opening/closing stock at year ends.... I didn't know I needed to, and I don't really understand it all (I have an accountant for the Ltd co, so that won't happen again!) But will it cause a problem that I didn't do any year end opening/closing stock figures as a sole trader? or is that irrelevant/not required for sole traders...? :|

Thanks for your time

The basic rule when you transfer stock to "your own company" is that the transfer is at market value. However, you can override that if both parties, ie yourself and the company, jointly make an election (ie tell HMRC) by January 2013. In this case, the value is the higher of cost or the amount paid by the company for the stock, which is of course an amount you can decide for yourself. This in effect enables you to choose whether a certain amount of profit will fall on yourself as sole trader, or on the company, and presumably you will want it to fall on the company.

Incidentally, similar, but not identical, considerations apply to capital allowances on any assets you may be transferring. All the transfers should be carefully documented, ie what is transferred and at what value.

Regarding your previous tax returns, unfortunately they will all disclose an incorrect profit figure because the value of closing stock should be deducted from purchases to calculate profit for the period. Although over the life of the sole trade the correct amount of tax will be paid (after you have taken account of the closing stock value as finally determined), some of this will have been paid late, and those returns should be revisited.

Chris

 

[Katy1980]

Oh god! I'm panicking now!

Luckily I've only done 2 returns, the first one being a non-profit first year and the second year being only a few hundred pounds to pay (because it was a 25 day year (because my year end is awkwardly 30th Apr). So, to correct those figures shouldn't be too painful tax wise....

HOWEVER! For example: Last year, my profit was 37k but I would have had, lets say 15k of purchased stock that remained unsold.... So, when that tax return is due, does that mean I would have to pay tax on 52k even though my year of trading only really saw 37k in the bank? Because that would mean an extra £5,500 in deductions. Oh my god, I hope not! If that is the case - do I get it back over time somehow? I can't get my head around how it works!

I feel sick!

 

[Williams lester]

Oh god! I'm panicking now!

Luckily I've only done 2 returns, the first one being a non-profit first year and the second year being only a few hundred pounds to pay (because it was a 25 day year (because my year end is awkwardly 30th Apr). So, to correct those figures shouldn't be too painful tax wise....

HOWEVER! For example: Last year, my profit was 37k but I would have had, lets say 15k of purchased stock that remained unsold.... So, when that tax return is due, does that mean I would have to pay tax on 52k even though my year of trading only really saw 37k in the bank? Because that would mean an extra £5,500 in deductions. Oh my god, I hope not! If that is the case - do I get it back over time somehow? I can't get my head around how it works!

I feel sick!

Yep, that's about it, if you have £15k of closing stock, you deduct this from the purchases figure which will increase your profit. So yes, your profit would indeed be £52k in this case. You really need to speak to your accountant (or find one who understand transfers of trade) to guide you through this and make the most tax efficient position for you.

 

[taxattack]

Oh god! I'm panicking now!

Luckily I've only done 2 returns, the first one being a non-profit first year and the second year being only a few hundred pounds to pay (because it was a 25 day year (because my year end is awkwardly 30th Apr). So, to correct those figures shouldn't be too painful tax wise....

HOWEVER! For example: Last year, my profit was 37k but I would have had, lets say 15k of purchased stock that remained unsold.... So, when that tax return is due, does that mean I would have to pay tax on 52k even though my year of trading only really saw 37k in the bank? Because that would mean an extra £5,500 in deductions. Oh my god, I hope not! If that is the case - do I get it back over time somehow? I can't get my head around how it works!

I feel sick!

Sorry, didn't mean to alarm you :redface:

Don't forget that your opening stock (ie that on hand at the end of your 2nd year, and which will be an adjustment to the second year) will be an addition to the 3rd year costs.

Am slightly puzzled by your "25 day year". Do you mean a full year, of which 340 days overlapped with your first year?

Chris

 

[Katy1980]

Yes, sorry to confuse - it was to do with overlap! I'm guessing I can just revise the first 2 years tax returns? Will I get into trouble with HMRC, or is it no big deal because it would have eventually have "come out in the wash" anyway...?

Sooo (last question I promise :redface lets say I have 15k of stock at the end of a given financial year. I would then consider my profit 15k more than it effectively is (hence pay tax on the additional 15k). So then, for example, the year after that year - I may have 25k of stock left - but would only be taxed on 10k (as it would be 25k less the 15k brought forward) Is that right? Please say yes, please say yes!!

I'm guessing it's kind of a way of forking out more tax upfront, but you get it back in the end... well, when you cease trading I guess...?

Thanks Chris, you've been great. Where are you based? Do you do tax planning? Do you want a new (dumb) client. And are your prices reasonable?

 

[taxattack]

Yes, sorry to confuse - it was to do with overlap! I'm guessing I can just revise the first 2 years tax returns? Will I get into trouble with HMRC, or is it no big deal because it would have eventually have "come out in the wash" anyway...?

Sooo (last question I promise :redface lets say I have 15k of stock at the end of a given financial year. I would then consider my profit 15k more than it effectively is (hence pay tax on the additional 15k). So then, for example, the year after that year - I may have 25k of stock left - but would only be taxed on 10k (as it would be 25k less the 15k brought forward) Is that right? Please say yes, please say yes!!

I'm guessing it's kind of a way of forking out more tax upfront, but you get it back in the end... well, when you cease trading I guess...?

Thanks Chris, you've been great. Where are you based? Do you do tax planning? Do you want a new (dumb) client. And are your prices reasonable?

Yes, it's really a timing issue. Will send you a pm.

Chris

 

[Katy1980]

Hmm... I've just had an email from my Accountant. They think I should just sell my stock at cost (because I'd avoid high tax and the cost I sell the stock for would not be taxed)

Here's what I was told:

if you sold at a profit then your limited company when not be able to make a profit on the stock purchased. I thought you just wanted to transfer what you had over to your limited company.
Tax wise you are better making a profit via your limited company rather than as a sole trader as you have bracket and as mentioned you fall in the 40 percent bracket where if your limited unless you make a ridiculous amount of profit you will only be taxed as a business at 21 percent.
I wouldn't complicate things I would just sell what you have at cost to your limited company.

I think that makes sense doesn't it? Perhaps I should just do that then...?