Money into own business

DeeMan

I put £16k of my own money into my business to buy stock. That stock became an asset (closing stock) and as such part of our profits. I ended up paying about an extra £3k tax on it. Was there a better more tax efficient way to introduce money to the business? Should this have been put down as a loan from a Personal Creditor? 

eskbanker

Director's loans would often be a recommended route, do/did you engage with an accountant?

DeeMan

Yes I did indeed. 

DeeMan

I should say I'm a Sole Trader, so no Directors. 

eskbanker

eskbanker said:

Director's loans would often be a recommended route, do/did you engage with an accountant?

DeeMan said:

Yes I did indeed. 

So what did they say about the most tax-efficient way of handling the situation?

DullGreyGuy

DeeMan said:

I should say I'm a Sole Trader, so no Directors. 

Are you doing cash or accrual accounting?

How has buying stock created more tax? 

As a sole trader there is no "company" all the money is yours and the business simultaneously because you are the same entity so all you've done so far is converted cash into product not made profit

More_complicated_than_that

DeeMan said:

I put £16k of my own money into my business to buy stock. That stock became an asset (closing stock) and as such part of our profits. I ended up paying about an extra £3k tax on it. Was there a better more tax efficient way to introduce money to the business? Should this have been put down as a loan from a Personal Creditor? 

You can't lend money to yourself and so it is capital introduced (Dr Stock £16,000 Cr Capital £16,000).  There is no P&L impact (and hence no tax impact) until you sell the stock or write it down.

Bookworm105

DeeMan said:
I put £16k of my own money into my business to buy stock. That stock became an asset (closing stock) and as such part of our profits. I ended up paying about an extra £3k tax on it. Was there a better more tax efficient way to introduce money to the business? Should this have been put down as a loan from a Personal Creditor

I should say I'm a Sole Trader, so no Directors. 

then you clearly do not understand your own accounts because you do not pay tax on stock.
You pay tax on profit from selling, not items you have not sold yet.

if you literally paid for stock and failed to record the fact that money was capital introduced to the business then make sure your accountant knows what you did and leave to them to record it correctly. Capital introduced which is then spent on stock purchases are 2 separate accounting entries,

Jeremy535897

The proper bookkeeping entries for accruals accounting are debit purchases, credit capital introduced, and at the year end, debit stock (balance sheet) and credit closing stock (profit and loss). The result is that you get no deduction for the cost of stock until it is sold, as has been said.
You can avoid this happening if you use cash accounting, because you don't bring anything in for stock, so the debit to purchases creates a deduction. If you sell the stock the following year, though, the whole proceeds, not just the profit, are taxed.