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Capital introduced

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    Capital introduced

    Hi all,

    I am a sole trader dealing in second hand music memorabilia.

    I would like to introduce some of my own private collection as stock.

    What value should I bring them in at:

    1) Their original cost - this could have been 20 years ago and so could generate a large profit when sold by thew business = tax liability

    2) Current market value - so likely to result in little or no profit when sold

    3) Or...?


    Many thanks for any advice :-)

    #2
    Current market value. Be able to show proof of your reasonable valuation. HTH.
    ---

    Former member of IPSE.


    ---
    Many a mickle makes a muckle.

    ---

    Comment


      #3
      Originally posted by wattaj View Post
      Current market value. Be able to show proof of your reasonable valuation. HTH.
      Thanks for your answer - I have a follow up question :-)

      If I bring stock in at current market value, then this will generate a very useful cash flow boost when sold, but is also likely to trigger an accounting and tax loss as there will be selling costs incurred; Ebay commission for example.

      So, I get a cash flow benefit and also a useful tax loss - this sounds very much like a win/win to me?

      Comment


        #4
        Originally posted by interestedparty View Post
        Thanks for your answer - I have a follow up question :-)

        If I bring stock in at current market value, then this will generate a very useful cash flow boost when sold, but is also likely to trigger an accounting and tax loss as there will be selling costs incurred; Ebay commission for example.

        So, I get a cash flow benefit and also a useful tax loss - this sounds very much like a win/win to me?
        Sale price should account for "cost of sales" otherwise one is running one's business into the ground.
        ---

        Former member of IPSE.


        ---
        Many a mickle makes a muckle.

        ---

        Comment


          #5
          Originally posted by wattaj View Post
          Sale price should account for "cost of sales" otherwise one is running one's business into the ground.
          I agree - the logical consequence of this is that stock introduced from the owner's private goods should be valued at market value minus a sensible estimate of selling costs?

          Comment


            #6
            Originally posted by interestedparty View Post
            I agree - the logical consequence of this is that stock introduced from the owner's private goods should be valued at market value minus a sensible estimate of selling costs?
            It should be viewed as though you were buying stock from an independent third-party. So, yes.
            ---

            Former member of IPSE.


            ---
            Many a mickle makes a muckle.

            ---

            Comment


              #7
              Originally posted by interestedparty View Post
              Hi all,

              I am a sole trader dealing in second hand music memorabilia.

              I would like to introduce some of my own private collection as stock.

              What value should I bring them in at:

              1) Their original cost - this could have been 20 years ago and so could generate a large profit when sold by thew business = tax liability

              2) Current market value - so likely to result in little or no profit when sold

              3) Or...?


              Many thanks for any advice :-)
              I'm curious rather than trying to offer expert advice.

              If you're a sole trader, isn't everything you buy and sell private stock?

              If following number 2, aren't you just saying you bought it personally 20 years back; you're now selling it personally to yourself at a profit but not paying tax on it; you're then selling it on to a third (second really) party at a small profit based on the price that you sold it to yourself? Or does it matter that you bought the stock before you registered as a sole trader?

              Comment


                #8
                Originally posted by Old Greg View Post
                I'm curious rather than trying to offer expert advice.

                If you're a sole trader, isn't everything you buy and sell private stock?

                If following number 2, aren't you just saying you bought it personally 20 years back; you're now selling it personally to yourself at a profit but not paying tax on it; you're then selling it on to a third (second really) party at a small profit based on the price that you sold it to yourself? Or does it matter that you bought the stock before you registered as a sole trader?
                I don't think it matters that I bought the stock before I started trading as I was a genuine collector, so in that respect I'm just like any other private individual who decides to sell some of their possessions.

                So I have twin identities: one as a sole trader and one as an individual - it just so happens that I'm buying (in my sole trader capacity) from myself (in my private capacity) and I don't think it matters if I make a profit as I've had the items for many, many years and they weren't purchased originally with any profit motive?

                Comment


                  #9
                  Originally posted by interestedparty View Post
                  ... I don't think it matters if I make a profit...
                  What if you sell them to yourself (as a sole trader) and make a profit, but then sell them on to a customer for less?

                  The devil is in the detail of how your business operates.

                  You would be better to keep the items in your personal possession, but advertise them through your business. At the point of sale, the customer pays your business, your business takes a cut (enough to pay any bills, etc) and you get the rest.
                  …Maybe we ain’t that young anymore

                  Comment


                    #10
                    Originally posted by WTFH View Post
                    What if you sell them to yourself (as a sole trader) and make a profit, but then sell them on to a customer for less?

                    The devil is in the detail of how your business operates.

                    You would be better to keep the items in your personal possession, but advertise them through your business. At the point of sale, the customer pays your business, your business takes a cut (enough to pay any bills, etc) and you get the rest.
                    Thanks for the advice - I'm thinking that it's probably cleaner, and less problematic, to keep them separate from the business :-)

                    Comment

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