self assessment (profit & stock)

moo_juice

am confusing myself again, can someone clarify. I am trying to work out my profit for last tax year but it doesn't look right and I cant seem to find a straight answer online!
I will use different numbers and try to keep it simple to explain...

Lets just say I started a new venture (have been SE for 5 years but in the service sector - I carried no stock or assets)

Half way through the tax year when I switched from service to sales venture. I had a £300 "float" in my business account, I used this to purchase items and sold online for lots of profit (woo!). Anyway, because the float was small (and I didnt want to get into debt) and I knew I needed to expand my stock to sell/earn more- I ploughed all the money I earnt back into more stock. So although I was earning good profit on my goods, my bank balance remained around the £300 level.

It came to the end of the tax year in april, I did a stock take and had roughly £1000 in stock (left to sell), but my bank account was roughly the same as when I started.

Have just totaled my income, vs my costs (cog,posting,fees etc) and the 2 figures are practically the same (about £4k each)

I itemised my sales in the first year (I dont bother recording individual sales now) and my profit from the sales should have been around £1000.

Now, for my self assessment, I need to work out the profit....
because deducting the costs, from the income = roughly £0 (but I had 1k in stock)

Do I add the value of the stock to my profit? Or How does the stock affect my figures exactly. otherwise, even though Im taking £1000 a month in sales now, I can see next april I will still have the same 300 in the account (and £0 total profit using profit/loss), but will probably have about 5k in stock by then.
Im pretty sure I should, but need to be 100% when it comes to the self assessment.

Auntie-Dolly

You need to reduce the cost of goods by the amount of stock in hand.

Maiden98

Closing stock/work in progress is added to the profit or to be more precise is deducted from the cost of purchases.

Then next year you will start with an opening stock figure of £1000, add on your purchases during that year, then deduct whatever your closing stock is at the end of that year to give your actual prurchases expense.

moo_juice

So, I deduct my stock (1k) against my expenses (4k), so my profit for the above example would be 1k (4k income-3k expenses)?

Maiden98

moo_juice wrote: »

So, I deduct my stock (1k) against my expenses (4k), so my profit for the above example would be 1k (4k income-3k expenses)?

Thats right. Then next year you start with 1k expenses already.

moo_juice

Thanks for your help.

Could I also double check what kind of book keeping I should be doing if any re HMRC if they want to check up at any time? I am a sole trader and since this tax year havent bothered itemising each individual sale (or weekly/monthly) totals. I am just keeping bank statements and using them to work out my profit/loss. I dont want to do extra work if it is not needed (and I dont need to do it for my benefit either). Last year I had a spreadsheet, but it was very time consuming and I found my bank statments to be far more acccurate.

chrismac1

I think you are on the right lines. Ultimately the business bank statements are key and should reconcile to the accounts. It's very unlikely in my view that you attract HMRC attention - on average 3% of SA returns get looked at in any given tax year.

In the case of my own practice, it's now well over 1,000 submissions since the last enquiry from HMRC so I guess one is due. Given that I have about 20 Construction Industry clients - more like 10% likely than 3% - I suspect that head count reductions within HMRC also mean enquiry reductions.

Back to your accounts. The final piece of the jigsaw is to satisfy HMRC that all of your receipts are going through your bank account.

The best way of doing this varies from sector to sector - till rolls in retail, sequentially numbered invoice booklets for plumbers / jobbing builders, sequential invoices for IT consultants and so on. If I cannot see for myself how a client's books can stand up to the question "Is all income being recorded in the accounts?" this is a discussion I have and we put a system in place to nail it down.

Maiden98

In addition to what chris said, obviously keep all expense related receipts/invoices too.