Buying and selling - Writing off against tax

Jak1211

Hi,

Hopefully this is a pretty straightforward question, but I am looking at starting my own online retail business after my wedding next April. Essentially buying from auctions, carboots, charity shops, buying in bulk etc and selling on Ebay and using Amazon FBA. I do it on the side now and do OK out of it for only a few hours here and there a month but would like to give it a go full time.

What I am essentially planning on doing is buying a load of stock over the next 10 months, building up an inventory and recording it in a sales ledger for tax purposes and going self employed from May 2020.

My question is, will the stock I buy still be tax deductible, as by the time May 2020 comes around and I start selling the stock we will be in a new tax year but it would of been purchased in the current tax year.

How will this work?

Pennywise

It depends on whether you adopt the cash or accruals basis of accounting. On what basis are you declaring your sales/profits at the moment?

With you already trading on a small scale basis, your "new" venture won't be a new business, it's just an escalation of an existing trade, so normal "start up" rules may not be relevant.

Jak1211

Hi,

Thanks for your reply, because I have done it on such a small scale, I have never earn't above the £1k threshold to file a self assesment.

Everything is currently recorded on a cash basis though.

Pennywise

If you're on the cash basis, the stock you buy this tax year will be an expense for this tax year, not the year you sell it. So if you continue claiming the £1,000 exemption, you'll effectively have no relief for the stock bought. You probably need to change to the accruals basis and not use the £1,000 trading allowance for this tax year. Then the stock you buy and have in hand as at end of tax year will be added back and carried forward into next year instead, which is presumably what you want to happen. The cash basis and the £1,000 trading allowance are really only useful for simple/straight forward affairs - when you start adding in complications, usually best to revert back to the default method of reporting profits and not adopt these reliefs/allowances.