Hello. I swapped from being a LTD company to a Sole Trader on 1st April last year and the stock asset (approx £15k) was included in the final LTD accounts. I entered the stock price as a journal on the sole trader accounts but as I’m now using the cash based method the £15k isn’t reflected. Am I able to ‘buy’ the stock with a physical payment from my sole trader account (thus reducing my tax by £3k), mark it as an expense but with no physical payment or just forget about it! Any help gratefully appreciated.
got this from chat gpt, sounds correct to me but make your own mind up.
When you stop trading through a UK limited company and continue as a sole trader, the stock is usually treated as being sold by the company and introduced into the sole trade at market value (or an agreed fair value).
For cash basis sole trader accounts, stock is much simpler than under accrual accounting because you normally don’t carry closing stock adjustments in the accounts unless you choose to. But the transfer itself still matters for tax.
Typical treatment:
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The Ltd company
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Records the stock leaving the business.
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Usually treats it as a sale to you personally (or to the new sole trade).
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This can create:
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company profit/loss implications
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possible corporation tax
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potential director’s loan implications if not paid for
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The sole trader
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Treats the stock as purchased stock at the value transferred.
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Under cash basis, you generally claim the cost when:
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you actually pay for it, or
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it is treated as paid/introduced.
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A common practical approach is:
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Value the stock at reasonable market value or cost.
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Company invoices/transfers stock to you.
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Sole trader records:
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stock purchase (allowable expense under cash basis)
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or owner’s capital introduced if not physically paid immediately.
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Example:
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Ltd company stock cost/value: £8,000
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You take it into sole trade.
Possible entries:
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Ltd company:
- sales/disposal of stock £8,000
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Sole trader:
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purchases/stock expense £8,000
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funded by owner’s capital or money owed.
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Important points:
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You cannot simply “ignore” the stock because you’re using cash basis.
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HMRC would still expect a reasonable transfer value between the company and you personally.
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VAT may also apply if the company is VAT registered.
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If the company is being closed, there may also be:
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BADR/Business Asset Disposal Relief considerations
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distributions on striking off/liquidation
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director’s loan consequences.
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Because this is a change of legal entity (company → individual), it’s worth getting an accountant to review the transfer value and tax position before filing final company accounts and your first sole trader return.
No.
The following is my understanding. I am not someone able to give tax advice, but you may find that taking the following to your accountant and asking them to say “is this right?” saves you a lot of time (and money) compared to just writing to them and asking for them to answer the question.
As far as the HMRC are concerned, if you receive it, the company has to account for the disposal.
So you’d need to account for the sale by the company to you as such a disposal.
If you transfer it to yourself without physically paying for it, it is treated as a ‘distribution’ of a company asset that you must declare on your personal tax return—essentially the same as if the company had paid you a £15k final dividend.
You have to agree a “reasonable value” at which the company sells it to you. You can transfer £15,000 of stock for £150… because the HMRC will regard that as a distribution of the difference.
Depending on what it is, you might be able to have the company sell it to you for as little as £5,000 or as much as £20,000. It’s about what you would reasonable expect to get for it if you just sold it.
But then, when you bring that stock into your cash-basis sole trader business, its value at the date of transfer (market value) is treated as a brought-forward expense. Under cash basis transition rules, you match it up: you don’t get an immediate £15k deduction on day one, but when you sell an item of that stock, you record the income, and you can offset the corresponding cost of that item as an expense.
Hi Mark. Thanks for the reply. Very helpful.