Do make or buy goods to sell? Whether or not you need to do a stock take will depend on whether you are using the more traditional accrual accounting methods or the new cash basis introduced by HMRC for the 2013/24 tax year. If you are using accrual accounting then the answer to the question is "Yes".
When it gets to your financial year end chances are you will have:
These all count as stock and if you are using the accruals basis for accounting then you need to do a stock take. The process will give you your Cost of Sales figure used when working out your taxable profits.
To calculate the Cost of Sales:
Opening stock (zero for new business or value at end of last year for existing businesses)
PLUS stock you have bought during the financial year
LESS stock left at the end of the year
EQUALS Cost of Sales
There are rules for valuing stock and work in progress. More detailed information can be found here http://www.hmrc.gov.uk/manuals/bimmanual/BIM33000.htm
Don’t forget you also have to take into account any stock that you have used, given as presents etc. There is a box on the tax return called “Goods and Services for your own use”.
Whichever method of accounting you are using it is useful for your business to understand how much you have bought and sold throughout the year. Therefore even if you don't need to do a stock take for your year end accounts it is recommended that you periodically undertake one as it provides useful information on the operation of your business. You may be surprised at what materials you have bought and what you have actually been using.
This is just a very brief explanation of whether you need to do a stock take and how to work out your cost of sales. For more detailed guidance and assistance get in touch now .
If you are using the new Cash Basis there will be more information in my next blog post but if you want more information before then contact us.
You have a hobby which you love and people start to ask if they can buy what you make – fantastic! The question is when does your hobby become a business and you need to notify HMRC that you are self-employed and register for self-assessment.
The answer is there is no precise definition of what a business is and the line between hobby and business can be blurred.
The main things to think about when deciding if your hobby has become a business are known as “badges of trade”. These include:
If any of the above apply it is possible your hobby has become a business and you need to inform HMRC. This must be done by 5 October after the end of the tax year in which you started trading.
If you are trading you will be liable for tax and national insurance contributions if you earn over certain thresholds. Whether or not you make any profit you will still need to register and keep records of all your sales and expenses. Any profit you make will be taxable if your total earnings (including any other employment) exceed the personal allowance (£9,440 for 2013 -14, £10,000 for 2014-15). You will then be required to complete a Self-Assessment return each year, the deadline is 31st January. This can be done on line or Simply Balanced Solutions file it for you.
Remember if you don’t inform HMRC you could incur a failure to notify penalty which may cost you up to 100% of the tax due plus the tax you owe. It’s easy to do and can be done online, if you are not sure what to do get in touch and we can advise you.
Simply Balanced Solutions can help with self-assessment and setting up record keeping systems for you, or you can give all your receipts and paperwork to us and we will turn it into useful financial information! Whatever you need we can help so give us a call on 02392006466 or email for a quote.
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