I have a query on an ex client of mine who has been in touch recently about helping with his fathers personal tax return.
So basically my client had a shop with a limited company which went bust at the end of 2012. His father was a director and had a substantial directors loan balance so on advice from their accountant the ownership of the stock was transferred to the father prior to the shop closing. After the shop ceased trading the father began disposing of the stock to try and recoup some of his personal investment. So when looking at his personal tax return for 13/14 I understand about showing the turnover created from selling the stock and I understand about accounting for expenses such as postage, stationary, etc. but I am really struggling to get my head round how to treat the actual stock itself that he is selling. The stock is being sold at cost to ensure it sells so in essence if I were to treat the cost of the stock as what it would have cost originally then then to sell it at cost he would show a loss on the personal return due to the additional costs of selling the goods. On the other hand if I were to look at it that there was no personal cost as the investment was with a limited company then he would show a profit and be liable to pay tax. I am no expert on tax and I want to ensure that I give him the correct advice so any advice on how the cost of sale should be treated would be greatly appreciated.
The company sold the stock to the father. The cost price will be the value that the company got which as payment wasn't made will be the value of the directors loan offset.
If that wasnt done then the value should be the 3rd party arms length value that the company would have looked for to sell to an unconnected party which is likely to be at least cost price to the ltd company.
if the company went bust was there any other creditors? If so then it is likely that a liquidator should have been appointed to maximise the realisation of assets, they might be able to help with a value for the stock? Though sounds like this didn't happen if the stock was just exchanged in compensation for the loan
