Small business accounts advice

[ColchesterFC]

Hi all, Mrs Colch is on the books of my limited company but also runs her own business from home at the same time. It's a craft business whereby she buys in raw materials and then makes them into products to sell online and at craft fairs.

So as an example she will buy in 2m of a pvc fabric and make them into 20 child size aprons. The 2m of fabric will cost approx £7 or 35p per apron. The strapping for the waist and neck, plus cotton for stitching, around 15p per apron. This gives a total cost per apron of approx 50p. She will then sell the aprons on at around £4 each.

We need to do her end of year accounts which have to include her existing stock levels. Is the value of the stock based on the raw cost of the materials (20 aprons at 50p each = £10) or is it based on the resale value of the products (20 aprons at £4 each = £80)?

As another example she also bulk buys wool at 80p a ball and sells it on at £1.20 per ball. Should outstanding stock be valued at 80p or £1.20?

My gut feeling is that it should be valued at the raw materials cost as until someone has paid her selling price that's all it's worth but would be grateful for any advice on it.

 

[User2021]

In a retail business, my stock is at trade cost excluding vat.

So yours would be at cost

 

[fundy]

For this type of business stock should be cost price, no reason for the stock to be "revalued"

 

[Lord Tyrion]

As above. It's the cost price of the raw materials.

Sales price doesn't come into it.

 

[GG26]

Stock is valued at the lower of cost or net realisable value.

In your wife’s case it will be valued at cost unless she holds any wool or fabric that she is unlikely to use in the future. Any items that are unlikely to be used should be assessed for what the estimated sales value is and if this is less than what it cost, she should use this lower value instead. Probably a bit over the top for the size of the business, but worth bearing in mind as this can affect the profits (ie it reduces them if appropriate) and hence the tax bill.

 

[SocketRocket]

Maybe I am misunderstanding something here. Sorry if thats the case.

Is she not a sole trader in her own business and as such under no obligation to make audited returns. I assume she is below the threshold for VAT and would only be liable for income tax on her net salary.

 

[Deleted member 1147]

Lower of cost or net realisable value.

So cost in her case.

 

[Maninblack4612]

Maybe I am misunderstanding something here. Sorry if thats the case.

Is she not a sole trader in her own business and as such under no obligation to make audited returns. I assume she is below the threshold for VAT and would only be liable for income tax on her net salary.

No, but she must produce accounts to determine her taxable profit (not salary).

 

[Maninblack4612]

With respect, if this is the limit of your accounting knowledge should your wife not employ an accountant to ensure the correct figures are being returned. She may not be claiming all her allowances, car mileage, use of home as an office, for example.

 

[chrisd]

Cost, or sale price, of the raw material whichever is lower is my understanding as it gives the true current value of the stock

 

[Deleted member 21258]

Hi all, Mrs Colch is on the books of my limited company but also runs her own business from home at the same time. It's a craft business whereby she buys in raw materials and then makes them into products to sell online and at craft fairs.

So as an example she will buy in 2m of a pvc fabric and make them into 20 child size aprons. The 2m of fabric will cost approx £7 or 35p per apron. The strapping for the waist and neck, plus cotton for stitching, around 15p per apron. This gives a total cost per apron of approx 50p. She will then sell the aprons on at around £4 each.

We need to do her end of year accounts which have to include her existing stock levels. Is the value of the stock based on the raw cost of the materials (20 aprons at 50p each = £10) or is it based on the resale value of the products (20 aprons at £4 each = £80)?

As another example she also bulk buys wool at 80p a ball and sells it on at £1.20 per ball. Should outstanding stock be valued at 80p or £1.20?

My gut feeling is that it should be valued at the raw materials cost as until someone has paid her selling price that's all it's worth but would be grateful for any advice on it.

As mentioned above it is the lower of cost and net realisable value.

I'm an accountant in practise and if you have any queries or unsure about anything when completing the tax return, then by all means ping me a PM and am happy to reply for free, as I would rather 'see' the tax return completed correctly and submitted correctly than errors being made and can guide you though the process of anything you are not sure of.

Thought I would mention, also be aware that the 31 January is not long now and assuming you are filing a tax return for 2017/18 and if she has not already registered online to submit the tax return, then time is rapidly running out, in order to obtain 'passwords' from HMRC. Therefore apply for them as soon as possible.

Hope that helps.

 

[chrisd]

As mentioned above it is the lower of cost and net realisable value.

I'm an accountant in practise and if you have any queries or unsure about anything when completing the tax return, then by all means ping me a PM and am happy to reply for free, as I would rather 'see' the tax return completed correctly and submitted correctly than errors being made and can guide you though the process of anything you are not sure of.

Thought I would mention, also be aware that the 31 January is not long now and assuming you are filing a tax return for 2017/18 and if she has not already registered online to submit the tax return, then time is rapidly running out, in order to obtain 'passwords' from HMRC. Therefore apply for them as soon as possible.

Hope that helps.

Ill ping over all my accounts tonight as well if you don't mind, it'll save paying my accountant

 

[Bunkermagnet]

My daughter is self employed doing hair and beauty etc. She isn’t the sharpest stick, but she has loads of common sense. She uses Quickbooks, and it makes her accounts and tax return almost a doddle (as much as anything to do with HMRC can be)

 

[Deleted member 21258]

Ill ping over all my accounts tonight as well if you don't mind, it'll save paying my accountant

I'll make an exception for you , I would rather let your tax return be incorrect and submitted incorrectly then help you though the process

Seriously tho if you need help, more than happy to help you out Chris as you are such a nice chap, however I am not taking on new clients, so it would only be help.

 

[chrisd]

I'll make an exception for you , I would rather let your tax return be incorrect and submitted incorrectly then help you though the process

Seriously tho if you need help, more than happy to help you out Chris as you are such a nice chap, however I am not taking on new clients, so it would only be help.

Was only joking Darren but, as usual, you're more than kind. This should be the last time I use my accountant as my business has all been wound up and in future I'll do it myself as no shares to sort, no capital gains, no entrepreneurs relief etc etc 😁😁

 

[ColchesterFC]

Thanks for all the replies. To answer a couple of points raised....

SR - she doesn't actually take any salary out of her business. She's on the books of my company and gets a salary from that. So far she hasn't made a profit in the three years she's been doing it mainly due to buying stock and other essentials such as £900 on various sewing machines, £2k on an embroidery machine and 2k on a trailer for her events. If anything it's more a hobby than a business and is never going to make big money.

MiB - everything goes to my accountant and he deal with her return for us. This is the first time in the 3 years she's been doing it that we've been asked for a stock figure. I guess it could be because she made a large purchase just before the end of the tax year this time round.

DRW - thanks for the advice. She's registered online through being on the books of my company and my accountant does both our returns. He'd emailed me late yesterday asking for the stock figure and by the time I saw it his office was closed so I couldn't phone to ask him so thought I'd see if anyone on here knew the answer.

 

[John_Martin]

Quite a difficult question to accurately determine the cost. But I will say for sure that it is cost price of the raw materials. Stock is valued at the lower of cost or net realisable value. Therefore, I prefer the agency for the provision of services, and not the creation of the whole production. In the same way I like original ideas like this startup https://www.splento.com/product-photographer-london, when the emphasis is on improving the quality of services, and not on creating a new principle product.