Stock Adjustments

Question 1

cessation - stock being sold / transferred to non-trade or non-UK trader rules / taken for own use

Answer 1

• value at MV
• if sold at under MV then add difference back to profit

Question 2

cessation - stock sold to unconnected UK trader

Answer 2

*if trader not connected then use actual sales consideration
* unlikely to be much under MV as not connected person
* no adjustment required for tax

Question 3

cessation - stock sold to unconnected trader ‘just and reasonable’ provision

Answer 3

• applies when stock is transferred along with other assets - stock can’t be over or under valued to obtain tax advantage
• look out for when vendor sells whole business for all inclusive price
• doesn’t apply when stock is sold on its own

Question 4

cessation - stock transfers between connected UK traders

Answer 4

• actual consideration is ignored for both parties
• stock is treated as sold at market value
• connected person: civil partner / spouse / relatives / relatives of spouse / spouses of relatives / business partners / company controlled (50%+) by connected person
• if MV not in accounts make adjustment

Question 5

cessation - stock transfers between connected UK traders ELECTION

Answer 5

• joint election
• substitute higher of cost or actual consideration instead of MV
• only made when MV is higher than cost / consideration
• often occurs on incorporation of sole trade business