Trading allowance or expenses for imported stock?
Compare the £1,000 trading allowance with your allowable expenses for the tax year, using your accounting method. If eligible costs exceed the allowance, expenses usually give a larger deduction; you cannot claim both. Cambridge China Bridge can help assemble supplier and shipment cost records.
Compare the whole tax year
Start with gross trading income before expenses, and ask HMRC to confirm which trading activities to include rather than looking only at the imported batch. Check eligibility with HMRC first, particularly if you receive income from an employer or a connected company or partnership. Our hobby or business guide covers these checks and reporting obligations.
Prepare alternative calculations using the same income figure. For the allowance calculation, subtract up to £1,000, capped at your income. For the expenses calculation, subtract allowable costs attributable to the year under your accounting method. If those costs exceed the allowance, expenses generally give the larger deduction. If costs exceed income, ask an accountant about claiming expenses and the resulting loss.
Build a cost schedule from the documents
HMRC treats goods bought and sold as part of your trade as business expenses. Only the business element of mixed costs is allowable. Under traditional accounting, HMRC’s stock-cost guidance includes purchase costs and costs of bringing stock to its present location and condition. Use that principle to review freight, duty, handling and clearance charges with your accountant.
Use hidden import costs to collect the relevant invoices without repeating its budgeting checklist. Record the supplier, cost description, invoice date, payment date, business purpose and whether the charge is already included in another invoice. A delivered quotation may already include freight or duty. Match deposits and balance payments to the invoice so the same purchase is not counted again.
Check when stock costs count
Under cash basis, count expenses actually paid. HMRC includes amounts paid for goods bought for resale, so eligible stock payments can count even where the goods remain unsold. An unpaid supplier balance does not count merely because it appears on an invoice. See when China stock payments are deductible for payment timing.
Under traditional accounting, expenses belong to the relevant accounting period and cost of sales reflects stock used during that period. Do not assume the entire batch invoice is deductible immediately. Reconcile remaining stock before comparing deductions, using valuing unsold imported stock for the separate valuation task.
Make the VAT treatment consistent
Separate VAT from the other charges in your comparison schedule and mark whether it is recoverable. Check the import documents alongside the supplier and broker invoices. If you are not registered, use importing without VAT registration to prepare the VAT questions for your accountant.
For VAT-registered businesses using cash basis, HMRC permits records including or excluding VAT, but income and expenses must use the same treatment. If VAT is included, payments to HMRC are expenses and repayments from HMRC are income. Follow that method throughout the comparison rather than mixing invoice totals with figures excluding VAT.
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Choose the deduction and preserve the comparison
Compare the allowance against the total eligible expenses for the year, including business costs beyond the shipment. Do not deduct the allowance and then add stock, freight or other expenses. Capital allowances are also unavailable when claiming the trading allowance. Ask your accountant to review equipment and tooling separately before treating them as stock costs. For classification, see our guide to imported equipment or resale stock.
Keep the comparison with sales records, supplier invoices, payment evidence and shipment documents. Ask HMRC to confirm the income-record requirements when using the allowance. Cambridge China Bridge’s staff in China can help clarify supplier charges and what a quotation includes; ask HMRC or your accountant to settle uncertain tax treatment.
Frequently asked questions
Should I claim the trading allowance or expenses?
Compare the allowance with total allowable expenses for the tax year. Expenses usually give a larger deduction when eligible costs exceed £1,000. Check eligibility, accounting timing and any loss before choosing.
Can I claim the allowance and deduct imported stock?
No. The trading allowance replaces expense deductions. You cannot claim it and also deduct stock, freight or other expenses, or claim capital allowances.
Can I deduct stock that has not sold yet?
Under cash basis, eligible amounts actually paid for resale stock can count even if it remains unsold. Under traditional accounting, remaining stock affects cost of sales. Use your accounting method consistently.
Should I include import VAT in my expenses comparison?
Check recoverability and your accounting treatment. VAT-registered cash-basis businesses may record including or excluding VAT consistently; including VAT also requires recording HMRC payments and repayments.