We all know the importance of holding the correct inventory levels in our business, ensuring we meet customer demand, yet minimising stock holding costs and risks of obsolesce. However, do you know the impact of ensuring you have inventory recorded at the correct value? UK Accounting Standards (FRS102) state that inventory must be held in the company records at the lower of cost and the estimated selling price less costs to complete and sell. But how do we calculate cost? Many SME business’ value their inventory based on the most recent purchase invoice from their supplier as this is the easiest method, however, is this accurate and what about the valuation of work in progress? CALCULATING THE INVENTORY “COST” Below is a summary of what should make up the calculation of “cost” for each line of inventory Cost of purchase must include: Further comments Purchase price Inventory should be recorded at the spot rate at the date of the transaction if purchased in a foreign curre...
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What is COGS? Your cost of goods sold (COGS) is the actual cost to physically produce your company’s product or service. How you calculate this number will vary depending on your solution and whether you consider it a product or service. The features and functionality of your solution will also impact the individual expenses that you include in your COGS calculation. For example, if you remanufacture toner cartridges, the costs for raw materials used in the production process, facilities and labour should all be considered key components of your COGS. Determining the cost to produce and/or deliver your solution can get tricky if you use other service providers or outsource parts of the production process. You will need to account for these expenses in addition to the cost of any in-house work. For example, if you’ve partnered with an MPS provider and use their remote monitoring tool to power your automated supplies fulfillment program , you shou...
Risk The appropriate treatment of expenditure on developing a website is dependent on the nature of the expenditure and the function the website performs for the business. If the costs incurred create an enduring asset, consideration should be given to treating the expenditure as capital. If such costs are not identified, there is a risk that these may be incorrectly claimed as revenue expenditure. Mitigation Review all payments relating to the business website(s), bearing in mind that these may be posted to marketing, advertising or IT costs. Where these include any expenditure on website development, consider whether this creates an enduring asset and should be treated as capital expenditure. Explanation Even though expenditure on website development may be shown in the accounts as advertising, marketing or IT costs, this does not necessarily mean that it is allowable as revenue expenditure. In order to identify the correct tax treatment the exact nature of the website costs s...
Risk Where a lump sum payment is made for the acquisition of a software licence, it will be accepted for tax purposes that the expenditure is revenue where the useful life of the software is expected to be less than two years. Where the expected useful life of the software is longer the correct tax treatment will depend on the circumstances, as set out in the explanation below. Mitigation Identify all payments for the acquisition of new software licences, and distinguish between regular periodical payments and lump sum payments. For any lump sum payments establish what the useful life of the software is expected to be for the business. For proprietors and partnerships where the expenditure is capitalised and the expected useful life is more than two years, any amortisation is not allowable as a revenue deduction, and a claim should be made for capital allowances. For companies the appropriate tax treatment will depend on the exact nature of the software involved. Effective from 6 ...
HMRC’s annually published ‘Capital v Revenue Expenditure Toolkit’ and their manuals provide useful sources of information on the tax treatment of website creation costs. The tax treatment of expenditure on developing a website is dependent on the nature of the expenditure. Website costs may be capital in nature (in which case it will normally be eligible for capital allowances as plant and machinery) or may be a revenue expense. The fact that it may be treated as revenue expenditure for accounting purposes, as advertising, marketing or IT costs, does not necessarily determine the tax treatment. Capital expenditure HMRC guidance indicates that application and infrastructure costs, including domain name, hardware and operating software that relates to the functionality of the website should normally be treated as capital. As regards other costs the toolkit says: “Design and content development costs should normally be treated as capital expenditure to the extent that an enduring asset is...
The tax point (or ‘time of supply’) for a transaction is the date the transaction takes place for VAT purposes. You need to know this because, for example: it’s included on VAT invoices it tells you which VAT period the transaction belongs to it tells you which VAT Return to put the transaction on The tax point can vary, but is usually the following. The date of supply is: for goods - the date they’re sent, collected or made available (eg installed in the customer’s house) for services - the date the work is finished Source: https://www.gov.uk/vat-record-keeping/time-of-supply-or-tax-point
Only include business expenses in your accounts if they belong to that accounting period. If an expense covers more than one accounting period, you’ll need to spread that cost. For example, if your rent is payable 12 months’ in advance halfway through your accounting period, include half of the payment payable as an expense in your accounts for this year. Include the other half in your accounts for next year. Source: https://www.gov.uk/government/publications/how-to-calculate-your-taxable-profits-hs222-self-assessment-helpsheet/hs222-how-to-calculate-your-taxable-profits-2016#traditional-accounting-accruals-basis
Original Excerpt from Schedule of records and information needed for visit: Please make sure that the records and information we need to see are available for the visit. They must cover the whole period from 1 March 2016 to 31 March 2018. The records and information we need to see are: Annual accounts Business bank statements VAT account and any related working papers Accounting books, for example, sales and purchase daybooks, cash books and petty cash books Sales and purchase invoices Documents such as contracts and correspondence relating to sales Your VAT registration certificate if this is your first VAT visit The certificate of incorporation for limited companies if this is your first VAT visit We may also ask to see your records from earlier VAT periods if we think it is necessar y.