Is stock and materials
tax deductible?

Yes. Goods you buy to resell, raw materials and the direct costs of producing what you sell are allowable (GOV.UK). You cannot claim goods or materials bought for private use, and anything you take from stock for yourself counts as a sale (SA103F notes).

For retailers, makers and tradespeople, stock and materials are often the largest cost of all. They are straightforwardly allowable. The questions are about timing, which depends on whether you use the cash basis or traditional accounting, and about goods that end up being used personally rather than sold.

Is stock and materials tax deductible?

The HMRC rule

Goods for resale, raw materials and direct production costs are allowable; goods for private use are not. The rule comes from Reselling goods, Self-employment (full) notes, SA103F.

GOV.UK lists goods for resale (stock), raw materials and direct costs from producing goods as allowable, and excludes goods or materials bought for private use (reselling goods). The SA103F notes put these in box 17, including commissions and discounts, with opening and closing stock adjustments if you use traditional accounting (SA103F notes). On the cash basis, expenses are deducted when paid (cash basis).

When you can claim it

• Goods bought to resell, including delivery and import costs.
• Raw materials and ingredients for things you make.
• Materials used on customers’ jobs, such as timber, cable or paint.
• Packaging for goods you sell.

When you cannot

• Goods bought for yourself or your household.
• Stock you take for personal use, without adding it back as a sale.
• Equipment you keep to make things, which is capital, not stock.
• Depreciation of equipment.

What to claim instead

If you take stock for yourself or your family, record it as a sale at its normal selling price rather than simply not claiming it. For equipment used to make your products, see tools and equipment: it is relieved differently.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is a running cost, so on the cash basis it counts when you pay it and on traditional accounting when you incur it. Nothing about it needs spreading over later years.
4. Is there a specific rule? For stock and materials, the deciding rule is stock and materials: goods for resale, raw materials and direct production costs are allowable; goods for private use are not.

Worked example: a candle maker

A candle maker spends £6,200 on wax, wicks, fragrance oils and jars, and £800 on packaging and postage for orders. On the cash basis, all £7,000 is allowable in the year she pays. She gives £150 worth of candles, at selling price, to friends as presents, which she adds to her sales.

Cash basis and stock

On the cash basis, now the default for most sole traders, you deduct stock and materials when you pay for them, whether or not you have sold them by the year end. That is simple, but it means a big stock purchase at the end of one year reduces that year's profit. There is no opening or closing stock adjustment.

Traditional accounting and stock

On traditional accounting, the cost of goods sold is your opening stock, plus purchases, minus closing stock. Stock is valued at the lower of cost and net realisable value. Unsold stock at the year end is carried forward, so its cost is deducted in the year it is sold.

Goods for your own use

If you take goods from your business stock for yourself, your family or as gifts to friends, add their normal selling price to your sales. That puts you in the same position as if you had sold them. Simply leaving the cost out of purchases is not enough, because it ignores the profit you would have made.

Materials on customers’ jobs

Tradespeople usually buy materials for each job and charge them to the customer, sometimes with a mark-up. The materials are allowable, and the amount charged to the customer is income. If you are VAT registered, VAT on materials is reclaimed and charged on in the usual way.

Commissions, discounts and delivery

The SA103F notes include commissions and discounts in cost of goods. Delivery charges for bringing stock in, and import duty, are part of the cost of stock. Outgoing postage to customers can go here too, or in office costs; be consistent.

Stock lost, stolen or damaged

Stock that is stolen, damaged or goes out of date is still a cost, because it was bought for the business. On the cash basis you have already deducted it. On traditional accounting, it simply does not appear in closing stock. Any insurance pay-out is income.

Samples and display stock

Stock used as free samples to advertise your goods is still a cost of the business. Display stock and demonstration models remain stock until sold. If you keep an item permanently for use in the business, rather than to sell, it becomes equipment.

Where it goes

Stock and materials go in cost of goods bought for resale or goods used, box 17 of the full self-employment pages. In Making Tax Digital quarterly updates, use the cost of goods category.

Where it goes on your return and in MTD

On the self-employment pages of your return, the claimable part of stock and materials belongs in cost of goods sold (SA103F box 17). The same category is used in Making Tax Digital quarterly updates, so recording it in the right place once keeps both returns consistent.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

The accounting basis changes when a cost counts. On the cash basis, the default for sole traders since 2024/25, it counts when you pay it; on traditional accounting, when you incur it, with things you keep claimed through capital allowances.

How much an allowable cost saves

An allowable expense does not come back to you in full: it reduces your profit, so it saves tax at your marginal rate. For a sole trader in England, Wales or Northern Ireland that is 26p in the pound at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate. The sole trader tax calculator works out the figure for your own profit.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep purchase invoices, delivery notes and, on traditional accounting, a stock count at the year end. Record any goods taken for personal use and their selling price.

If Making Tax Digital for Income Tax applies to you (qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028), the records must be digital, and each quarter's costs go into a quarterly update. Check your date with the MTD requirement checker.

Common mistakes

• Not adding back goods taken for personal use.
• Treating equipment as stock.
• Forgetting the year-end stock adjustment on traditional accounting.

Related expenses

This item sits in the cost of goods sold category. The A to Z of expenses answers the same question for every other cost.

If you record your costs in TapTax, each one lands in the HMRC category it belongs to, with its receipt attached, so your quarterly updates and year-end return use the same figures.