How to account for sales post-cessation of trade?

Do you get to deduct the cost of closing stock from post-cessation sale proceeds of stock?

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HMRC states specifically that transferring stock post-cessation of trade does not fall under the 'post cessation receipts' rules.

BIM90055 - Post-cessation receipts and expenses: receipts which are not post-cessation receipts: transfer of trading stock - HMRC internal manual - GOV.UK (www.gov.uk)

It gives a number of scenarios to help determine the value of the stock at cessation for tax purposes, but it isn't very helpful in determining taxable profit when the stock is actually transferred/sold. I am trying to work out whether the tax cost of the stock is deducted from the sales proceeds when they are eventually received? I would assume so, as the cost would have increased taxable profits in the final accounting period when closing stock was calculated - so surely the taxpayer would get relief for that cost somewhere. Can anyone confirm please?

Thanks.

Replies (14)

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By johngroganjga
27th May 2024 17:26

Yes of course you do. Otherwise the stock you have sold will sit on your balance sheet forever. How would that be right?

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Replying to johngroganjga:
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By NathanWebb
27th May 2024 17:32

Presumably no further balance sheets would ever be prepared once the final period of account had been prepared and trade had ceased, so I just wanted to double check it wasn't an area of tax leakage - thank you!

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By Ruddles
27th May 2024 18:41

You are missing a fundamental point. On cessation of trade you should have accounted for a notional disposal of the stock at MV.

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Replying to Ruddles:
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By NathanWebb
27th May 2024 18:53

Is that even if there was no indication at that time that the stock was going to be sold? I presume you're suggesting you remove the stock and accrue the income?

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Replying to NathanWebb:
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By David Ex
27th May 2024 19:36

NathanWebb wrote:

Is that even if there was no indication at that time that the stock was going to be sold?

What was the plan for the stock if not to sell it?

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Replying to David Ex:
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By NathanWebb
27th May 2024 19:39

The intention was to sell, until the date of cessation, after which it appeared it was going to be unable to be sold.

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Replying to NathanWebb:
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By David Ex
27th May 2024 19:46

NathanWebb wrote:

The intention was to sell, until the date of cessation, after which it appeared it was going to be unable to be sold.

So how did it end up being sold if the business owner thought it was worthless. And what was the plan to dispose of the stock? Take it to the tip? What was it?

EDIT: So are you saying the balance sheet value at cessation was zero?

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Replying to David Ex:
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By NathanWebb
27th May 2024 21:05

So (and forgive me for sounding stupid here), unless you believe the stock to be worthless, you're to accrue for a notional market value sale of that stock, and remove it from the balance sheer as at the date of cessation?

When it comes to, say, a commercial office building owned by the sole trader and shown in the balance sheet, is it possible to just credit this out and put it to drawings without triggering some kind of similar market value disposal adjustment?

Thanks.

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Replying to NathanWebb:
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By David Ex
27th May 2024 21:43

NathanWebb wrote:

So (and forgive me for sounding stupid here), unless you believe the stock to be worthless, you're to accrue for a notional market value sale of that stock, and remove it from the balance sheer as at the date of cessation?

When it comes to, say, a commercial office building owned by the sole trader and shown in the balance sheet, is it possible to just credit this out and put it to drawings without triggering some kind of similar market value disposal adjustment?

Thanks.

Value of stock at period ends is integral to the calculation of profit. The same isn’t true of commercial property per se.

You also need to bring into account the value of assets used in the business on which tax allowances have been claimed. You can’t just take the assets and ignore the tax consequences.

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Replying to David Ex:
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By NathanWebb
27th May 2024 21:52

That's right completely agreed - the reason I mention commercial property is there's no pool balance to clear really, so I wasn't sure if SBA complicated the ability to simply move it to drawings. And I assume the usual treatment for fixed assets as deeming them as disposed at market value wouldn't make much sense in this case!

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Replying to NathanWebb:
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By Paul Crowley
27th May 2024 22:10

If the company owned a building then it still owns it until it sells it
Any sale not at arms length is at Market Value for tax purposes.

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Replying to Paul Crowley:
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By NathanWebb
27th May 2024 23:02

In this instance it would be a sole trader

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By Paul Crowley
27th May 2024 19:50

If stock was on the balance sheet, then inherently it was taxed as if sold for cost price.

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Replying to Paul Crowley:
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By Tax Dragon
28th May 2024 06:42

Hence for tax there is a MV adjustment.

See Ruddles, see BIM33525 and/or see s175 ITTOIA.

BIM here is quite good. It provides examples and comments on other scenarios. See eg 33485 and 33630.

There's of course a potential VAT adjustment too.

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