end of year tax and stock?

19lottie82

I started an ebay business a few months ago and have registered with the hmrc.

at the moment I have been ploughing most of my "profits" back in to building up my stock.

what will happen when I file my tax return, will I get asked by the hmrc how much stock I have on 31/03/14 and then taxed on the purchase value of my stock?

zygurat789

19lottie82 wrote: »

I started an ebay business a few months ago and have registered with the hmrc.

at the moment I have been ploughing most of my "profits" back in to building up my stock.

what will happen when I file my tax return, will I get asked by the hmrc how much stock I have on 31/03/14 and then taxed on the purchase value of my stock?

Even though you have "ploughed your profits back into stock" you have still made a profit and are still liable to tax on it.
The math uis:-
Amount of stock in hand at beggining of period PLUS
Amount spent on goods for resale in period
LESS Stock in hand at the end of the period.

All values are cost, what you paid for them.
This givers you a value for Cost of sales, if you deduct this from Turnover you have Gross profit and if you deduct allowable expenses you have net (taxable) profit.
So, in answer to your question, no HMRC will not ask you how much stock you have on hand because they expect you to have dealt with this figure correctly. Failure to do this could be construed as fraud and punished accordingly.

Pennywise

From 6/4/13 you can adopt the new "cash basis" for small sole trader accounts/tax which means that you don't have to adjust for year end stocks, creditors or debtors. It really is the "cash" basis, i.e. money in and money out, in the tax year.

https://www.gov.uk/simpler-income-tax-cash-basis/overview

You'd have to do the calculations under the new cash basis, and the old, established accruals basis, to compare and see which method would be best for you.

19lottie82

excellent, thanks very much, both of you