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2nd Tax Year - Claiming expenses for Materials not used from previous tax year

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  • 2nd Tax Year - Claiming expenses for Materials not used from previous tax year

    Hi!

    I wonder if someone can answer this query for me.

    If you deduct expenses for materials purchased in one tax year, but by the second tax year you have not used these materials - can they be deducted again? Alternatively, are expenses and profits from the previous tax year carried forward to the next tax year when calculating tax due?

    I'm just a bit concerned that if I were to deduct the cost of all the materials I have purchased this year and next year I don't buy much (because i've got LOADS in stock at the moment) it may give a false impression of how much profit i have made....

    Not sure if this makes much sense, but hopefully someone will get where I am coming from!!

    Thanks everyone.
    Brunette
    www.smudgecreations.co.uk
    www.facebook.com/smudgecreations

  • #2
    I'm sure someone will know, but I'd suggest phoning the tax office, they are really helpful and you've not got long to get your form in if you want them to do your calculations for you.

    Carol
    Sparklez.co.uk
    Handmade Jewellery

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    • #3
      Bit s late of an evening to try and think too clearly on this one but I think you need to swat up on opening and closing balances. Basically you need to do a stock take of all your stocks, work ot the value of what you have used in a particular tax year and declare this in your returns. The rest goes into next years returns as your opening balance - or something like that. So basically you claim in this year for what you've used in this year and carry forward to next year what you haven't used in this year. I'm sure there's probably an accountant lurking somewhere in the wings who can explain it much simpler though. Also check out BusinessLink for some worked examples of profit/loss accounts/etc. that cover this subject.
      www.woodsprites.co.uk

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      • #4
        Originally posted by brunette View Post
        Hi!

        I wonder if someone can answer this query for me.

        If you deduct expenses for materials purchased in one tax year, but by the second tax year you have not used these materials - can they be deducted again? Alternatively, are expenses and profits from the previous tax year carried forward to the next tax year when calculating tax due?

        I'm just a bit concerned that if I were to deduct the cost of all the materials I have purchased this year and next year I don't buy much (because i've got LOADS in stock at the moment) it may give a false impression of how much profit i have made....

        Not sure if this makes much sense, but hopefully someone will get where I am coming from!!

        Thanks everyone.

        No, you can't claim the costs again - if you could there would be no incentive to use them, since you could claim them forever!

        If you haven't used them in the year when you expensed them, then it still gives an accurate picture of your profit over the two years.
        It's never too late to gyrate!

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        • #5
          right, been to a business link workshop and thought I would answer this one in case anyone else comes across this thread!

          As the helpful people above have indicated you only take into account the stop USED, its called the "cost of sales", you're therefore only claiming for the materials used to make the items you sell that year and so on, it does not therefore really matter how much money you have spent on materials that year, its only the materials used which are relevant. On this basis I am pretty sure that you can include materials bought three years previously if you have used it in the current year. Anyway, would definitely recommend a business link workshop (profit and making money) to clarify this issue.
          Brunette
          www.smudgecreations.co.uk
          www.facebook.com/smudgecreations

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          • #6
            If i was to spend say £400 on clay this tax year and have £100 worth of clay left at the end of our tax year then i would enter that £100 as 'materials still in stock' and deduct this amount from my claim for materials expenses. Applying that method for all materials in stock will mean you only claim for materials used and will more accurately show a trading profit.

            For me it is easy enough to add up an 'net worth' of what materials we have in stock on a given date ( ie the last day of the tax year ) but i would imagine it could be a nightmare for some craftfolks who have millions of different bits n' bobs all over the place...i suppose that is the point of stock control software.

            That said my materials still exist after they have been used, albiet in another form... pottery... so until i sell the pots the materials remain 'in stock' oh its gets so complicated
            http://www.dosrodgerspottery.co.uk/

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            • #7
              In very simple terms:

              Opening stock of materials at cost + Purchases of Materials during year - Closing stock of Materials at cost = Cost of goods sold

              Thats the most simplified version! If you have stock that you will not ever use or has no resale value then that can be reflected in the closing stock figure.


              I used to be an accountant... but now I just sell beads!

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              • #8
                hi, sorry to butt in on this thread, but having read it i think I have confused myself. I did my first tax return last year and all I did was add up everything I had bought, add up everything I had sold and entered it on the relevant places...is this the wrong way? Last tax year I hadn't spent too much, but this tax year, because of setting up my business further, i have spent quite a lot out (but i have got half of it back in sales ) . I don't necesarily use all the components I buy, but I account for it as I bought it in that tax year. Please reply if i need help understanding :O

                Thanks

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                • #9
                  By taking what you spent (expenses) away from what you earned (income) you are doing income and expense accounts. These are perfect for groups, charities etc (this is what I do for Brownies etc)

                  But, a business has to take into account the stock they have at the beginning and end to make sure it's a true reflection of what they have earned (profit) so the tax man knows what your tax is based on.

                  You work out how much all your stock is on the first of april (as an example). Add to this all your purchases during the year. But then at the end of the year add up how much the stock is worth again and take that off. That final stock balance is then the initial stock balance for the start of the next year. This way you reflect the income from the goods sold with the cost of the goods sold.

                  I have a nightmare with it as I have a craft room full of paper, patterned paper, card, beads, buttons, ribbon and a million other little bits, the majority of which was there before I turned into a business and I tend to use (but not charge to the business as it would be difficult to prove how much it costs etc as I can't even remember buying most if it! lol)
                  Elin
                  xx
                  Come and say hello at:
                  My blog - Elin's Cards
                  My website - Cards by Elin
                  My facebook page.

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