The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:
Statutory references to ITTOIA 2005 relate to unincorporated businesses and CTA 2009 relate to companies unless otherwise stated.
If a trader decides to take trading stock other than for the purpose of the trade an adjustment is required to the accounting profit. For example, where trading stock is appropriated to fixed assets, an adjustment is required.
This principle was established in the case of Sharkey v Wernher but was given statutory authority by FA 2008, s 37, Sch 15.
This principle only applies for goods (ie completed trading stock). It does not apply for services or raw materials which have not yet become stock. The adjustment is made by adding the sale price of the stock to the accounts profit. Essentially, it is as if the trader has bought the stock at cost then sold it to himself for its retail selling price.
See also Simon’s Taxes B2.205 (subscription sensitive).
If a trader takes an asset which is used in his trade but is not part of his trading stock, and then brings it into the business as trading stock, then the ‘cost’ of the stock for the purpose of the accounts is the market value at the time it was introduced. This may be the case where a property developer has a fixed asset which he uses in his trade (eg a building), and he then takes that building as part of his trading stock to be developed.
For capital gains purposes, the trader will also be deemed to have disposed of the fixed asset at market value. This will result in a chargeable capital gain
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