Inventory when closing business

mib2

I have been wanting to move to a limited company for a while (currently just self employed sole trader buying and selling retail online). Now with making tax digital looming, i want to get it done now so i dont need to bother with it for my sole trader business. Instead i would like to close my business which i have always done my own accounts for, then open a ltd company and get an accountant to do the faff, at least until its all running smooth and i can learn it without feeling pressures off misstepping.

If i close my business and sold all my stock to the new business, can i just sell as joblot of all stock, for a total value? I dont want to itemise it all because there is thousands of different items.

If i do just sell as 1 big lot, how does the limited company account for closing stock? Do they need to class every item as the same value? (Cost/ total units)? Or do they have to work out a fair value of each item?

Also, if i stopped my self employment without starting the new company and had stock sitting there unsold and gaining dust, is that possible or can i not cease trading until inventory is 0? 

mib2

mib2 said:

I have been wanting to move to a limited company for a while (currently just self employed sole trader buying and selling retail online). Now with making tax digital looming, i want to get it done now so i dont need to bother with it for my sole trader business. Instead i would like to close my business which i have always done my own accounts for, then open a ltd company and get an accountant to do the faff, at least until its all running smooth and i can learn it without feeling pressures off misstepping.

If i close my business and sold all my stock to the new business, can i just sell as joblot of all stock, for a total value? I dont want to itemise it all because there is thousands of different items.

If i do just sell as 1 big lot, how does the limited company account for closing stock? Do they need to class every item as the same value? (Cost/ total units)? Or do they have to work out a fair value of each item?

Also, if i stopped my self employment without starting the new company and had stock sitting there unsold and gaining dust, is that possible or can i not cease trading until inventory is 0? 

Just too add, im below vat threshold so no vat is involved at present, but i would intend to grow the ltd company so vat may be involved in the future

uknick

Lots of stock accounting related questions there.

1. A Ltd must value its stock, and all balance sheet items for that matter, at year end at their fair value; that is the lower of cost or what you can realistically sell it for.  For a company of your expected size, the valuation can be done in-house.

2. When you transfer the stock to the Ltd from your sole trader business you usually sell it to them at the value you think is fair, usually what you paid for it.  This will have an impact on your final sole trader accounts; the level of impact will be dependent on whether you do cash or accruals accounting for your sole trader business.

3. When you sell it to the Ltd, the usual accounting transaction is to create an asset called stock and then a liability called director's loan account, i.e. the Ltd owes you for the stock.

4. Your question about having unsold stock when finishing your sole trade business will again depend on whether you do cash or accruals accounting.  If cash, then you've already accounted for it in your tax return when you originally bought it so if it just sits there until rotted away so be it.  If accruals, it will not have figured in your tax return yet.  You'll need to decide if you want to write it off and take advantage of the loss that may arise, or just throw it away.  Either way, HMRC won't care about stock just sitting there going to waste. 

MyRealNameToo

mib2 said:

I have been wanting to move to a limited company for a while (currently just self employed sole trader buying and selling retail online). Now with making tax digital looming, i want to get it done now so i dont need to bother with it for my sole trader business. Instead i would like to close my business which i have always done my own accounts for, then open a ltd company and get an accountant to do the faff, at least until its all running smooth and i can learn it without feeling pressures off misstepping.

If i close my business and sold all my stock to the new business, can i just sell as joblot of all stock, for a total value? I dont want to itemise it all because there is thousands of different items.

If i do just sell as 1 big lot, how does the limited company account for closing stock? Do they need to class every item as the same value? (Cost/ total units)? Or do they have to work out a fair value of each item?

Also, if i stopped my self employment without starting the new company and had stock sitting there unsold and gaining dust, is that possible or can i not cease trading until inventory is 0? 

Are you currently doing cash or accrual accounting?

You can sell it as a job lot to your new company or someone else. Obviously there will be a question as to where the money for the new company to pay for it will come from. As it is a related entity the price charged should be fair value, ie what another unrelated company would probably have paid and in principle it is something HMRC could challenge you on if they feel you have intentionally over/under charged 

If you were doing accrual accounting you could simply stop. You bought the goods with your own money so as long as you gift them or just keep them for personal use there'd be no issue.

With cash accounting its more complex because you will have already deducted the purchase of these from your tax liability and so anything unsold at the end needs correcting out so you'd in simple terms would have to pay tax as if you had sold them all at cost even if you havent. 

mib2

MyRealNameToo said:

mib2 said:

I have been wanting to move to a limited company for a while (currently just self employed sole trader buying and selling retail online). Now with making tax digital looming, i want to get it done now so i dont need to bother with it for my sole trader business. Instead i would like to close my business which i have always done my own accounts for, then open a ltd company and get an accountant to do the faff, at least until its all running smooth and i can learn it without feeling pressures off misstepping.

If i close my business and sold all my stock to the new business, can i just sell as joblot of all stock, for a total value? I dont want to itemise it all because there is thousands of different items.

If i do just sell as 1 big lot, how does the limited company account for closing stock? Do they need to class every item as the same value? (Cost/ total units)? Or do they have to work out a fair value of each item?

Also, if i stopped my self employment without starting the new company and had stock sitting there unsold and gaining dust, is that possible or can i not cease trading until inventory is 0? 

Are you currently doing cash or accrual accounting?

You can sell it as a job lot to your new company or someone else. Obviously there will be a question as to where the money for the new company to pay for it will come from. As it is a related entity the price charged should be fair value, ie what another unrelated company would probably have paid and in principle it is something HMRC could challenge you on if they feel you have intentionally over/under charged 

If you were doing accrual accounting you could simply stop. You bought the goods with your own money so as long as you gift them or just keep them for personal use there'd be no issue.

With cash accounting its more complex because you will have already deducted the purchase of these from your tax liability and so anything unsold at the end needs correcting out so you'd in simple terms would have to pay tax as if you had sold them all at cost even if you havent. 

I'm doing accrual accounting, thats music to my ears because i thought it would be more complex with doing traditional accounting. So to save possible hassle, i will sell as much as i can up till christmas and try to clear the majority of the stock. Then i will stop trading and either use, gift or chuck whats left. In this case,for my final P&L on my Cost of sales calculation, do i end with 0 closing stock, or the value of the left over closing stock? Thank you

I can then start fresh with a new business next year, i would like to have a break in between so this makes perfect sense 

Savvy_Sue

Although I don't doubt the accuracy of the answers you've received, I wonder if you've already identified a potential accountant for your new Ltd, and if you have whether it would be worth taking their advice on this? (And if you haven't, whether it would be worth doing so now rather than later ...)

mib2

Savvy_Sue said:

Although I don't doubt the accuracy of the answers you've received, I wonder if you've already identified a potential accountant for your new Ltd, and if you have whether it would be worth taking their advice on this? (And if you haven't, whether it would be worth doing so now rather than later ...)

If my decision is to close my business down fully and have a break, then i wouldnt get the accountant until i am ready to launch the new business, which i would probably do in april so that my accounting dates coincide with the financial year