TSCB 7: Those rules apply to me? How? Summary of Expenses so far

As we’ve now reached a grand total of 7 articles in the Tax for Small Craft Business Series, and quite a few people are showing a bit of bewilderment, there’s a couple of points I think I need to emphasise, and also examples to share about how the rules can be very simple really. No, honestly they can, although perhaps not so much for craft businesses because of the stock valuation issues.

This post follows the steps a brand new small crafting business (a made up person called Alice’s made up new venture making & selling fudge) takes to get her first year’s figures into their Tax Return, based on the issues about trading periods and the sorts of expenses we’ve covered so far – so it’s not complete by any means, but should give you a bit of help to understand how what we’ve covered operates in real life.

The example ended up quite long, so it’s in two parts:

• Today’s post covers how to deal with all the ‘normal running costs’ expenses – that is anything that’s not ‘stock’.
• The second part (available on Wednesday) will cover the ‘stock’ expense and a bit more on stock valuation, and getting the figures into the Tax Return itself.



Featured Seller: BrightStar 109 (Claire English) See her Etsy shop here

and about her work at the foot of this article

TSCB 6: Expenses - Stock, Work in Progress & Appropriations

As a crafting business you often are both manufacturer and retailer. Stock control is important so you know what you’ve got on hand to sell, but it also matters for working out your expenses for tax. You need to know what you started with, what you used, what you’ve sold and what you’ve got left.

To be absolutely clear, you can only claim the underlying expenses relating to the products you have actually sold (or have left your ownership) in the Trading Period – all the other expenses for raw materials/ supplies etc that you’ve bought aren’t eligible for tax relief until those materials or supplies have been sold. They just sit in your stockpile until they are ‘used up’.

So, if you have been claiming expenses for raw materials or supplies purchased during the Trading Period that you haven’t actually used to make something that has actually been sold or otherwise taken out of your ownership during the Trading Period– technically you’ve been doing it wrong because that’s the ‘cash basis’ and you should be using the Accruals Basis (see the last post about Cash & Accruals Basis). To regularise your position you will have to make an adjustment to add back the expenses you have overclaimed in earlier years, based on what stock you have on hand on the first day of your new Trading Period. You really also ought to tell HMRC, which could lead to a revised and higher tax liability for earlier years (or reduced losses), penalties and penalty interest.

Featured Seller: Poppy Sparkles (Viv Smith) See her Etsy shop here

and about her work at the foot of this article