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Goods for own use

Which legislation/ case law states that goods for own use should be at selling price? Also if VAT registered, is it net of VAT? Also advise on determining selling price please for clients in takeaway who eat on premises.


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Reply to Lily
The Inspector is wrong. I have had many years of direct tax experience dealing solely with Pubs, Clubs, Hotels, Restaurants and takeaways. Providing the business is run as a sole trader or partnership, any food stock used for private consumption (by the trader/partner or his family) should be valued at cost, credited to purchases and debited to drawings thus removing the stock from the business as if it had been purchased at cost by the trader out of his private funds. Read statement of practice A32 and refer the Inspector to this. Please note that this only applies to food for clients in this industry and not alcohol or other sundry sales (the SP extends to services provided by a trader to himself or family and stock used to manufacture a fixed asset used in his trade).
You should not have a problem with this once the Inspector has been enlightened!

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Goods for own use
Thanks for the comments, I am interested to know if anyone has experience of IR accepting the treatment as drawings? The comment from Neil is very relevant as the meals that the owner cooks for themselves are not on the menu so how do you value at sales price? Treatment as drawings would be simpler.

Currently the Inspector is suggesting that bag of rice take for home use is valued at sales price of meals!

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Another view
I remember an interview with a client that ran a chinese takeaway and the tax inspector. When the inspector asked how much of the takeaway food the family ate, my client looked shocked and said "We don't eat that kind of food! We eat proper food!"

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Reply to Robert Graham
The "sale at market value" treatment does not apply to food for income tax purposes - Statement of Practice A32 refers.

There is a common contrast between food (excluding alcoholic beverages)and other stock when dealing with the own consumption by hoteliers/publicans where the own food is treated as drawings at cost and the other stock marked up at the relevant margin and treated as sales.

In answer to the question, therefore, the own consumption of a take-away proprietor and his family of food should not be treated as sales at market value for income tax purposes. The cost of the food to the trader should be debited to drawings and credited to purchases.

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further point
I agree with the points below. Take care, however if it is a company that has incurred the expenditure. In that case it does not fall within the SP because the expenditure is not the personal expenditure of the person, but expenditure of the company. The items in question are then deemed to be sold to the person who is eating all the pies. It would be treated as a sale for VAT too.

So Mr Wong unincorporated is OK, Mr Wong Ltd is not, I think.

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Own Goods at Selling Price
For a business that trades in purchased stock, it makes sense that goods taken for personal use are booked at normal selling price in order to maintain the correct GP margin. I once had a hotelier client, were the food and drink margins fluctuated wildly month on month and despite monthly stock taking, the problem could not be resolved. 6 months down the line I came across a
"red book" where the owners food was entered including when he entertained guests for the w/e!
He was never billed for this beforehand as it was "his hotel". the next monthly managem,ent Accounts showed his consumption at gross cost as an itemised Sale and he was flabbergasted. This has never appeared inthe Accounts before, quoth he!
Well it does NOW, quoth I. And the agreed margins are now attained. Point made!

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Correct GP Margin - John Mackay
If the goods consumed are credited to purchases and debited to drawings the GP margin will be not be affected!

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Sharkey v Wernher HL 1955 36TC275
Thisis the income tax rule for the supply of goods.

For services the rule is softened .

In a statement of practice (SP A32), the Revenue state that they do not apply this decision to services rendered to the trader, or for his household for the value of meals, provided the cost is disallowed under ICTA 1988, s. 74(b), or to expenditure incurred on the construction of a fixed asset.

For VAT a different route is followed, although in practice the result is much the same.
The approach of UK VAT legislation is, firstly, to disallow the input tax, or the relevant part, where the supplies are wholly or partly made for non-business purposes at the time of supply; secondly, where goods forming part of the assets of the business are transferred or disposed of, a deemed supply takes place, so that VAT is payable .

This is based on Statute. VATA 1994 Sch4
Para.5(1) "Subject to sub-paragraph (2) below, where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, that is a supply by him of goods."

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The case of Sharkey v Wernher (1955) established the principle that a proprietor taking stock from his business for his/her own consumption or enjoyment must treat the transfer for taxation purposes as if at market value.

This means your clients should note what meals are taken and account for them as a full sale and for VAT as well. If they pay for the meal in full it is not a problem

The value should be easily determined from their menu and a proper record maintained to avoid problems in any future enquiry.

Hope that helps


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