confused about self assessment.

windswept

I thought that I understood everything about sa, unfortunately , the issue of stock has completely thrown me. I assumed that buying stock would just come under "expenses", but from what I have read, apparently not. I will only have to fill in the 3 line bit on our partnership form ( turnover under £15k), so will not have to go into p & l or balance sheets. we have also yet to break even what with startup costs etc. ( only started up in october)
For example , we have spent £4k on stock in total, turnover is approx. £2k ( hopefully more by april!), expenses without including stock, approx. £600.
So I would estimate that we have in the region of £3k of stock left, exactly how do we account for this?
I thought that we would be making a loss of @£2600, now I understand that will not be the case, what I don't understand is how to get the "right " figure?
the problem with looking at examples of other people is that they are rarely like your own , hence my confusion.
thank you in anticipation of some clear, concise , replies.

theblindman

windswept wrote:

I thought that I understood everything about sa, unfortunately , the issue of stock has completely thrown me. I assumed that buying stock would just come under "expenses", but from what I have read, apparently not. I will only have to fill in the 3 line bit on our partnership form ( turnover under £15k), so will not have to go into p & l or balance sheets. we have also yet to break even what with startup costs etc. ( only started up in october)
For example , we have spent £4k on stock in total, turnover is approx. £2k ( hopefully more by april!), expenses without including stock, approx. £600.
So I would estimate that we have in the region of £3k of stock left, exactly how do we account for this?
I thought that we would be making a loss of @£2600, now I understand that will not be the case, what I don't understand is how to get the "right " figure?
the problem with looking at examples of other people is that they are rarely like your own , hence my confusion.



You work out your cost of sales =opening stock less closing stock £1000 plus your expensesof £600 your costs are £1600 on sales of £2000 = profit £400

you need to check on capital expenses as well

windswept

so are you saying that, in effect, we will have to pay 22% tax on "profit" of £400? how can that be when we haven't actually made ANY profit yet, we borrowed the money for stock and start up costs (on a 0% cc), given that we have used our tax free allowances in our paid employment. the value of stock left that I have given is trade price, retail would be more like £6k. does that make any difference. I am even more confuzzled now! to me, that means that we are taxed twice, once on the stock value and then again when we sell it, that doesn't seem right! the only capital expenses we have are for a market stall (£120) and 50% of the price of a laptop ( £275 - it was 6 months old when we started using it for the business). I have also forgotten petrol expenses, probably about 500 miles @40p = £200.
With these figures, how would I fill in the 3 line partnership form?
turnover

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allowable expenses

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net profit (or loss)

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theblindman

exactly 22% on £400
You are taxed on the profit you make after any allowable expenses
capital purchases are not allowable but you can claim a portion per year, this would be your £120, if this in included in your £600 expenses your profit figure would be £520, then it would be reduced by your capital allowances on the £120 (you need to work that out based on when you bought it and first year writing down, HMRC website best for this)
If you ever have an investigation ( I've had one 1 tax n 2 vat) you will need to produce eveidence for your petrol expenses, say a notebook where you write mileage each time and base your claim on the mileage figure available from HMRC, this will reduce your profit figure. Also if you use your home phone for business you can claim some of that, electricity the same.
You are not being taxed twice, you have made a profit of £2000 from selling goods of value £1000 and have expenses of £600, hence £400 profit.

mikewebs

Opening Stock + Stock Purchase - Closing Stock Value

O/Stock £1000 + Stock Purchase £2000 - Closing Stock £500 = £2500

Remember to value the stock correctly - it should be the lower of cost and net realisable value.

Also make sure you take into account any purchase returns or sales returns!

Hope this helps

windswept

looks like we will be having a few more expenses, then, we do actually need some things to get ready for the "outdoor" season.
so what are the implications of buying more stock, then, more tax, less or no impact? ( before 31 march).
I did a tax workshop with hmrc, and he didn't explain things as well as I thought, obviously. it was more geared to self employed tradespeople, in fact, in my workbook I have written that stock is an expense, so that must have been said at some point. he didn't differentiate between stock for plumbers, builders etc. and stock for retail sale.
if tax advisers can't get things right, there's not much hope for the rest of us!

WHA

The first page of HMRC's guidance notes on self employment accounts taxable profits is well worth a read to confirm the advice given:-

http://www.hmrc.gov.uk/helpsheets/ir222.pdf

windswept

WHA wrote:

The first page of HMRC's guidance notes on self employment accounts taxable profits is well worth a read to confirm the advice given:-

http://www.hmrc.gov.uk/helpsheets/ir222.pdf

I have just waded through all ELEVEN pages of the helpsheet, and I think I finally get it! cheers for that , I don't know how I missed that one on the hmrc site.:T

Debt_Free_Chick

windswept wrote:

so are you saying that, in effect, we will have to pay 22% tax on "profit" of £400?

Just a general point to help you understand the theory ...

Profit is - roughly - the difference between the price you sold the stock at, less the price you paid for it - less operating expenses.

Any stock you have at the end of the year is, effectively, an asset of the business and would be shown on the balance sheet (not the profit & loss account).

WhiteLily_2

Hi there
I had exactly the same problem regards stock for a shop and actually phoned the Help Line two weeks ago. I specifically told the girl that answered I was a retailer and did my stock go under as a business expense and she said Yes. She also confirmed this with her Supervisor. I also asked that as my turnover was under £15k (as I had only been trading a couple of months) would I need to annualise and she said No. On completing the on-line assessment it forced me to annualise - so now I am beginning to wonder about the effectivenss of the help line. Looks like I may have made an error on my submitted tax return but sure it will all come out right in the end!

WHA

WhiteLily wrote:

Hi there
I had exactly the same problem regards stock for a shop and actually phoned the Help Line two weeks ago. I specifically told the girl that answered I was a retailer and did my stock go under as a business expense and she said Yes. She also confirmed this with her Supervisor. I also asked that as my turnover was under £15k (as I had only been trading a couple of months) would I need to annualise and she said No. On completing the on-line assessment it forced me to annualise - so now I am beginning to wonder about the effectivenss of the help line. Looks like I may have made an error on my submitted tax return but sure it will all come out right in the end!

The helplines are notorious for this - unfortunately some of their advisers don't understand business accounts and have nothing to refer to other than the published notes, so often do give wrong information.