As far as stock is concerned, the accounting treatment will generally drive the tax treatment and HMRC is happy with this. Financial Reporting Standard 102 (FRS 102) requires that stock is evaluated at the end of the accounting period to assess any loss in value due to obsolescence, damage or market changes. The valuation here should be based on “selling price less costs to complete and sell” as a basis for recognising such a loss.
Where post balance sheet events cause damage HMRC believes that values should only be reduced for tax purposes (ie the write down allowed) if the issue existed at the accounting date. For example a post balance sheet fire would not give rise to a tax adjustment until the following year. However if the damage was caused by a chemical leak which existed at the year end then it would be acceptable to take the deduction in the earlier year.
As stock valuations are quite a subjective area sometimes they are allowed to stand at what could be argued to be excessive values. However conscientiously undertaking stock valuations could lead to tax deductions and cash flow advantages and is also the correct approach from an accounting perspective. There could also be a real tax saving if deductions are realised at the higher corporation tax rate of 19% before rates drop to 17% in 2020.
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