Goods taken from stock for own use: cost, or market value?

If your business holds stock, you almost certainly take some of it for yourself. The tin of beans off the shelf. A joint from the counter for Sunday lunch. A few plants for your own garden. Timber left over from a job, used at home.

Nobody thinks of this as a tax event. HMRC very much does, and it is one of the first questions an inspector asks when they look at a shop, a pub, a salon or a farm. A nil figure, or an obviously guessed one, tends to make them wonder what else in the records is guesswork.

The good news is that the rules got a lot friendlier for most small businesses from April 2024. Here is what you need to know.

The two possible answers

When you take goods out of the business for your own use, you have to put something back into the figures. What you put back depends on how your accounts are prepared for tax.

If you use the cash basis, you use the cost price. You simply take the cost of those goods out of your allowable expenses. If the beans cost you 60p, that is the number.

If you use traditional accounting (the accruals basis), you have to use market value. In other words, the business is treated as though it sold the goods to you at the going rate. If the beans cost you 60p and sell for £1, the £1 is what goes into the tax figures, and you are taxed on 40p of profit you never actually made.

That second rule dates back to a 1955 court case and has been written into tax law ever since. There is no way to opt out of it.

Why this probably works in your favour now

Until recently, most businesses were on traditional accounting by default, which meant most were caught by the market value rule.

That flipped from the 2024/25 tax year. The cash basis is now the standard method for sole traders and most partnerships, and the old turnover limits have gone. If you want traditional accounting, you now have to actively choose it.

So for a great many businesses, the answer is now cost price rather than market value. If your own-use figure has been calculated on retail prices out of habit, you may well be paying more tax than you need to.

A few businesses cannot use the cash basis and have to stay on traditional accounting. That includes limited liability partnerships, partnerships that have a company as a partner, and certain farming businesses using specialist tax elections. Limited companies are always outside the cash basis, so the market value rule always applies to them.

Working out market value, if you have to

If you are on traditional accounting, market value is the awkward bit. Some things that help:

Use your lowest ordinary selling price. If you sell at a trade price, in bulk, or with a staff discount, HMRC accepts that market value can be the lowest price you sell at in the ordinary course of business, in comparable quantities. That is often well below the shelf price.

Value the goods as they actually were. Market value is judged at the moment you take them. Bread at the end of the day, damaged goods, short-dated stock and end-of-line items are not worth full price, and you should not value them as though they were.

Pick a method and stick to it. HMRC will normally accept a reasonable, documented approach applied consistently. What causes trouble is a round-sum figure with no working behind it, or the same number appearing every year regardless of what actually happened.

Things that were never really stock

Not everything you take out of the business is stock, and the market value rule only applies to goods you hold for sale. Where something was never part of your saleable stock, you simply lose the cost as a deduction and that is the end of it.

Some common examples:

• Meals for you and your family if you run a hotel, guesthouse or restaurant. These are specifically excluded from the market value rule. You disallow what the food cost, not what you would charge a customer. This one is regularly overlooked.

• Your own labour on your own home. If you are a plumber fitting your own bathroom, your time is not stock. The materials are treated separately.

• Building something for the business out of your own materials. If you use business materials to build a workshop you always intended to keep and use, that does not create a market value charge.

• Personal purchases put through the business. If you buy a garden strimmer on the business card, you have not taken stock. It is simply a personal cost that is not allowable, and it comes out at what you paid for it. The same applies whichever basis you are on.

If a single invoice covers both business stock and personal items, split it rather than treating the whole thing one way.

VAT works differently again

If you reclaimed VAT when you bought the goods, taking them for personal use counts as a sale for VAT purposes, and you owe VAT on it. The value used for VAT is what the goods cost you, not what you would sell them for.

So on traditional accounting you can genuinely end up with three different numbers for the same tin of beans. Cost in your accounts, market value in your tax return, and cost again for VAT. That is not a mistake in your bookkeeping, it is just how the rules sit alongside each other.

If you did not reclaim VAT on the goods in the first place, there is nothing to pay.

If you trade through a limited company

The company is always on the market value rule, and on top of that you have to account for the goods personally, either through your director's loan account, as a taxable benefit, or as a dividend.

The simplest fix is to pay the company the full market value for anything you take. Do that and the paperwork looks after itself.

What to actually do

• Keep a running record. A dedicated button on the till, a notebook by the stockroom door, or a note in your accounting app once a week. Anything written down as you go is worth far more than a figure estimated at the year end.

• Check which basis you are on before you calculate anything. For most small businesses the answer is now cost price.

• Do not put nil. If you hold food, drink, fuel, plants, timber, salon products or building materials, HMRC will not believe it, and it invites a much wider look at your records.

• Tell us if anything unusual came out of stock, particularly anything high value. A car, a large plant order or a property is a very different conversation from a weekly shop.

The amounts are usually small. The cost of getting them visibly wrong is not.

This is general guidance rather than advice on your particular situation, and the rules have specific exceptions. If you would like us to check how your own-use figure is being calculated, or to look at whether the cash basis suits your business, please get in touch.