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<blockquote data-quote="smcapstick" data-source="post: 2388212" data-attributes="member: 2924"><p>Yes, you are reading it wrong. He has not reached the end of the year with a million and a half in his pocket, in fact he may well have an empty bank account. </p><p></p><p>That is the profit from sales, you see. It does not take in to account the purchase of stock to replace that which has been sold. A dealer could sell everything in the yard and show an enormous profit for the year, then go out of business the next because there is nothing left to sell. I discovered this when I was penniless, in the middle of winter when nothing was selling, and a letter from HMRC landed on the mat demanding five figures. I could not understand why, until I asked the accountant - assets are tax deductible, you see. If a farmer is at the end of his tax year and has shown a profit, the tax can avoided by purchasing an asset (be it a new tractor, machine, building, land... whatever). This reduces the annual profit. When a dealer buys stock, call it 50 Manitious, it is NOT an asset but trade stock so it makes no impact on the tax bill. Sure, you could be naughty and claim that ten of them are for business use, but that would not only be fraud but you would be charged capital gains when you sold them. </p><p></p><p>The tax system for a retailer is very different to the system imposed on a farm.</p></blockquote><p></p>
[QUOTE="smcapstick, post: 2388212, member: 2924"] Yes, you are reading it wrong. He has not reached the end of the year with a million and a half in his pocket, in fact he may well have an empty bank account. That is the profit from sales, you see. It does not take in to account the purchase of stock to replace that which has been sold. A dealer could sell everything in the yard and show an enormous profit for the year, then go out of business the next because there is nothing left to sell. I discovered this when I was penniless, in the middle of winter when nothing was selling, and a letter from HMRC landed on the mat demanding five figures. I could not understand why, until I asked the accountant - assets are tax deductible, you see. If a farmer is at the end of his tax year and has shown a profit, the tax can avoided by purchasing an asset (be it a new tractor, machine, building, land... whatever). This reduces the annual profit. When a dealer buys stock, call it 50 Manitious, it is NOT an asset but trade stock so it makes no impact on the tax bill. Sure, you could be naughty and claim that ten of them are for business use, but that would not only be fraud but you would be charged capital gains when you sold them. The tax system for a retailer is very different to the system imposed on a farm. [/QUOTE]
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