Must I reverse VAT on lost or damaged stock?
Normally, no: a genuine stock loss does not itself undo a valid input-tax claim for intended taxable sales. Keep evidence of the original claim and what happened. Output VAT on an existing customer sale is a separate question. Cambridge China Bridge can help assemble factory and shipment records.
Check the original recovery separately
For imported trading stock intended for taxable sales, genuine theft or destruction frustrates that intention rather than changing it. HMRC says wasted costs do not change the initial deduction entitlement. Damage alone is not a reason to reverse a valid claim. This assumes the original recovery was correct.
Keep the original import-tax documents alongside the loss file. Use giving your accountant import VAT evidence for the recovery paperwork, rather than treating photographs of damaged goods as proof of the tax claim.
Build a loss file that explains the stock movement
Record the product, batch, affected quantity, location, discovery date and what happened. Reconcile the incident with warehouse receipts, stock records and dispatch records. Collect photographs, carrier correspondence, incident reports and any police or insurance references.
For destruction, ask for a dated record identifying the goods and confirming what happened to them. Keep any surviving stock separate in your reconciliation. For arrival evidence, follow the damaged shipment checklist. These are practical evidence suggestions, not a prescribed HMRC checklist.
Check whether a customer sale already exists
The input-tax conclusion does not settle output VAT. For theft from your premises, HMRC’s no-VAT treatment assumes you have not already invoiced a customer. Where a sale exists, check the contract, responsibility for the goods and invoice position.
For goods lost before delivery, customer responsibility means VAT remains due on the sale. If you bear the loss and issued a VAT invoice, VAT is due on the invoiced amount less customer credit. Give your accountant the contract, invoice and any credit documents together.
Distinguish a damaged sale from insurance money
If you sell damaged goods or scrap, normal VAT applies to the selling price. An insurance payment covering damage has no VAT due on it. Record those receipts separately.
For unsaleable destroyed goods handed to your insurer, HMRC says no VAT is due on that handover or the insurance payment. It expects evidence of the claim and payment at inspection. For physical disposal arrangements, see destroying imported goods.
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Give your accountant a connected evidence pack
Send the original recovery documents, stock reconciliation, incident evidence and any customer or insurer documents together. Ask for separate conclusions on the retained input-tax claim and any output VAT. Explain whether goods were lost, destroyed, sold as damaged stock or handed to an insurer.
Cambridge China Bridge’s own staff in China can help collect factory inspection photographs, packing records and shipment correspondence. Ask for records that identify the affected batch and connect it to your UK stock file.
Frequently asked questions
Do I repay import VAT if my stock is stolen?
Normally not solely because of genuine theft, if the original claim for intended taxable sales was valid. Keep the recovery documents and evidence explaining the missing stock.
Is a stock write-off enough evidence?
Build a file beyond the accounting entry: identify the goods and reconcile the loss with stock records, photographs and incident correspondence.
Do I charge VAT when selling damaged stock?
Normal VAT applies to what you sell the damaged goods or scrap for. Keep that sale separate from any insurance receipt.
Does keeping input VAT mean no sales VAT is due?
No. Check the customer sale separately, including responsibility for the goods, any VAT invoice and customer credit.