Test Purchases

[Sheila1000]

As an integral part of my work, I have to make test purchases. I charge the cost of the purchase on to my client but, generally, keep the purchase or dispose of it, as the clients don't ask for them to be returned.
How should this be treated for Taxation purposes? Is it correct to assume that the items (all of very low value) are costs (which are deducted from the Gross Profit), and not income.

[cranleys]

This should be a charge treated as purchases. It appears to be treated correctly.

So long as they have no personal use these will not be questioned.

Colin@cranleys.co.uk

[Sheila1000]

Many thanks for that. What happens in the event that they could have a personal use? Can I still argue that they are purchases?

[Instinctive]

When you keep the test goods, what happens to this eventually? When you dispose the test goods, how do you dispose it and do you receive any value for it? If you use any of it for yourself personally, is there any commercial value of these goods?

Basically, if there is no value attached to these goods, you could ignore them completely.

As far as the purchase are concerned, these will presumably be included in with other purchases during the year. When you recharge these to your customers, presumably at cost, you should credit the amount charged against the original purchases. This then has the effect of cancelling the original purchases with the subsequent recharge to your customers.

If the amount is not material, you could leave the recharge in the sales figures.

Ramnik

[Sheila1000]

Some items are disposed of (thrown away), if the test purchase is food it possibly eaten and cannot be returned (although sometimes it is tempting), occasionally there may be items such as postage stamps which the client does not require returning or fuel which cannot be returned. In the case of fuel, for example, I have no choice but to use it. We're dealing with values of £5 to £10 per item in most cases.

All items are charged to the client at cost and are itemised on the invoice.

The Inland Revenue have suddenly started saying that these items are taxable benefits - however, I cannot carry out the work without making the purchases - as that is my job.

[Instinctive]

I think that you should state the full and correct nature of your query in the first place rather than beating about the bush as you did in your first two posts.

It appears that the Inland Revenue is trying to assess the value of the goods which you have retained and used for your personal benefit. If so, they are correct. The goods have been bought and paid for by the business and therefore all benefit of these goods should be reflected in the net profit of the business. The value of the benefit is the amount which your business would have otherwise received if it had sold them to a third party. If they had a face value, eg stamps, this is the value of your benefit. If it is petrol, this could have been used in the business vehicles or sold on to someone else. If it is food which is out of date and therefore would have been thrown away otherwise, there is evidently no commercial value for this.

In principle, the Revenue have a valid point.

Ramnik

[Sheila1000]

"I think that you should state the full and correct nature of your query in the first place rather than beating about the bush as you did in your first two posts." I think you should learn some manners!

[Instinctive]

You question my manners when I simply request that you should get direct to the point. Is this how you show your manners to someone who is giving free advice? If so, one can only wonder the fate of those from whom you receive paid advice.

I will let other people be the judge of manners.

Ramnik

[Jeremy&Co]

But surely,
If Sheila is buying the item(s) for and on behalf of a client - at the clients request, and that client decides that they don't want the item(s)they are simply a cost incurred in the course of the work. Wouldn't the only tax liability be on the fee charged to the client?
On a side note, what do HMCE and Trading Standards do with the goods they obtain as test purchases?

[Lambs]

I think that if something is enjoyed by reason of one's employment, then it is immaterial that the employer itself provides the benefit. I say this because it would appear that the items actually belong to S's client(s), as averse to S's employer. Of course, it would depend on the precise nature of the agreement between employer and client.

S, I presume that you are also acting as the employer - you are a limited company? I am thinking that some sort of PAYE Settlement arrangement might be in order? (The employer might still be responsible, if engaged in the arrangement by which an employee enjoys a benefit).

Lambs