self assessment question

dprovan

Hi all,

As a second source of income I buy and sell items on ebay. I have completed a self assessment tax return for the last two years.

I have never actually reflected the stock that I have been carrying as of each april. I always worked on the assumption that there was no need to as the tax man would eventually get the profits of this when it all sold. I have read something lately that suggests I should either be recording this stock carried over to the next year or detracting it from the column that records purchases as I have not sold them yet.

Can anyone confirm how i record this and what section of the online submission this is captured in.

many thanks in advance

Pennywise

Yes, you have to adjust for opening and closing stocks every year. Normally this would take the form of adding opening stock to your purchases and deducting closing stock which gives you the figure for "cost of sales" to put on your SA return. As you havn't adjusted in the past, for this time, you just have to deduct closing stock from purchases in the year to give you the cost of sales figure and then remember to do it every year from now on. I am assuming the figure is relatively small in which case probably ok to adjust this year and not go back to correct prior year returns. But if each year end stock figure is significant, and, for example correcting it pushes your profits into a different tax or NIC band, i.e. from say £4k to £6k in a year, or £38k to £45k, in a year, then you really should confess to HMRC and submit correcting tax returns as there are real tax/nic differences and not just timing differences from one year to another.

If you've missed this point, you should also check other areas that are often missed. For example, "sales" is the value of goods sold and services performed in the year, not the amount invoiced nor the amount received, so you have to adjust for opening and closing debtors and unbilled work in progress as well. Also, re expenses, you have to claim only the "value" of goods/services consumed in the period, so most businesses will have accruals and prepayments - to account for where, say, the insurance policy runs for a different year to the accounts or where you're billed quarterly for telephone so you're ahead on the line rental but behind with the calls, or where, in say, March you pay a few hundred for Yellow pages, you have to "prepay" 11/12ths to transfer most of the cost to the next tax year. Simple businesses, especially those without premises etc won't really have much to worry about. Again, you have to consider whether the figures are significant enough to warrant making such adjustments - you wouldn't adjust for an insurance prepayment of just £25, but you probably would for £250, and again, if the adjustments push you into a different tax/nic rate or band, then those adjustments are important.

dprovan

Pennywise,

thank you for such a great reply. You have helped so much.

Thankfully for me my 'business' is fairly straightforward in the sense I buy goods and sell on ebay. In terms of costs I only have ebay fees, paypal fees and postage. I do not claim for anything like lighting electricity etc. In truth this is a hobby that gives me a few extra pounds.

In terms of the stock. I will correct for my submission for 09/10. I do not think it presents other difficulties as you explained. My profits are relatively modest. In previous years I have returned a profit between 3-4k. 09/10 was a bad year for sales so in truth, deducting closing stock from purchases will bring my profit almost the same as previous years and get me displaying properly from now one.

Once again, thank you so much for such a detailed and helpful response:T