Closing stock and Corporation Tax: how stock changes your profit

There’s usually no separate tax calculation for stock. Your closing stock changes the profit in your accounts, and the tax computation starts from that profit. So the figure you put on stock at the year end is also a tax figure.

Last checked against GOV.UK on 2 November 2026.

A4O Accounts files your accounts and CT600 from the same figures. Get started free, no card required.

A worked example

A company with a taxable profit under £50,000 pays Corporation Tax at 19%. It has no associated companies, and all its costs are allowable. At the year end, £2,000 of its stock is damaged and is written down.

The £2,000 write-down lowers this year’s tax by £380. Figures are invented.

Why it’s mostly timing

This year’s closing stock is next year’s opening stock. If you value stock £1,000 too high this year, this year’s profit is £1,000 too high and next year’s is £1,000 too low, assuming the stock is sold. The total profit over the two years is the same.

The tax over the two years can still differ. A different rate may apply in each year, because the rate depends on the year’s profit. And a company that overstates its stock has paid tax early, while one that understates it has underpaid and may owe HMRC interest and penalties.

Where it appears in the computation

The tax computation starts from the profit in the accounts, and that profit already includes the stock figure. So if the accounts value stock correctly, you normally don’t add or deduct anything for it.

Depreciation is different: it’s added back and replaced by capital allowances. Stock has no such adjustment, which is why the count and valuation matter before you get to the tax. See counting, valuing and writing down stock.

What HMRC accepts

HMRC accepts two bases for stock: the lower of cost and net realisable value, and mark to market. It accepts the figure in your accounts if it correctly follows accounting standards and pays enough regard to the facts.

So write down for a reason you could explain, and keep the count sheets and any notes on damage or prices. A round-sum reduction made to lower the tax isn’t a valuation.

If the basis was wrong

If you’ve been using an invalid basis and move to a valid one, HMRC’s manual says both the opening and the closing stock for that period must be worked out on the new basis. Where earlier years can be reopened, those figures must be worked out on it too.

A change between two valid bases has its own rules, so get advice first. Making an estimate more accurate isn’t a change of basis.

If you only need to correct a figure in a return you’ve already filed, see amending a CT600.

Stock you take out of the business

If the company appropriates trading stock for another purpose, the profits of the trade are calculated as if it had been sold at open market value on that date. Anything actually received for it is ignored.

So goods a director takes home are normally taxed at what they’d have sold for, not what they cost. If they’re charged to the director instead of paid for, that goes on the director’s loan account.

If the company stops trading

When a company permanently ceases to trade, its stock at that date must be valued in working out the final profits. The basis depends on what happens to the stock, including whether it’s transferred to another trader. HMRC’s guidance is in BIM33450.

At the year end

Count and value your stock before you finalise the accounts, and post the result before you start the computation. Both then use the same figures. The year-end checklist gives the order.

In A4O Accounts

The tax computation starts from the profit in your books, so a stock-take or write-down posted to the books carries through to the computation and the CT600. Stock is off until you need it. A company’s Manager turns it on under Overview → Modules. See CT600 software.