Sole Trader Tax Returns...

Hi everyone glad I found this site!
I have started Roots2Locks selling beauty products. I have registered as Sole Trader and just need help to clarify a few things. I have bought stock myself which I resell. Now if I put all profits back in which is the plan, will I still be liable for the tax on those profits when the tax return comes up or will I be writing it against expenses for new stock. I know it might sound silly but its still very early days for me being a Sole Trader.

Thanks Cleo

Re : Sole Trader Tax Returns

Basically, your gross profits arise from sales matched against the cost of goods sold.

For example, you purchased 10,000 widgets at £1 per widget. During the year you sold 5,000 widgets at £1.50 per widget. Therefore, you still had 5,000 widgers in stock at the year end which cost £1 per widget. Therefore, you gross profit is as follows:-

Sales (5,000 sold at £1.50) 7,500
Less: Cost Of Goods Sold
Purchase (10,000 bought at £1) 10,000
Less: Closing Stock (5,000 bought at £1) 5,000
------
5,000
------
Gross Profit £2,500
======

You then take off other expenses such as rent, insurance, travel etc to come down to you net profit.

I hope this helps.
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