Specialist accountants
Stock and cost of sales for online sellers
If you buy goods to sell, the money you spend on stock and the profit you make are not the same thing in any one month or year. Your stock records are what link them.
The short answer
Cost of sales is what the goods you actually sold cost you. Stock you bought but haven't sold yet is not part of it. If your stock figure is wrong, your profit is wrong, and so may be the tax worked out from it. A limited company must record its stock at the year end. A sole trader can use cash basis or traditional accounting, and GOV.UK gives high levels of stock as one reason to choose traditional accounting.
Cost of sales, in plain terms
Cost of sales is the cost of the goods you sold in a period. One way to work it out:
Stock at the start, plus stock bought in the period, minus stock left at the end, equals cost of sales.
Example with made-up round numbers: you start the year with £2,000 of stock, buy £10,000 more, and count £3,000 left at the end. The goods you sold cost £9,000. If you had counted £5,000 left by mistake, cost of sales would show £7,000 and your profit would look £2,000 higher than it really is.
Some costs, such as delivery to get stock to you or into a warehouse, raise the question of whether they belong in cost of sales. Ask your accountant how they treat them.
Why it matters for tax
Profit is the starting point for the tax a business pays. A wrong stock figure moves profit, so it can move the tax bill too. It also affects how much the figures say each product earns once fees and refunds are taken off.
Limited companies: what you must record
GOV.UK says a limited company's accounting records must include the stock the company owns at the end of the financial year, the stocktakings used to work out that figure, and all goods bought and sold.1 For a seller whose stock is in a marketplace's warehouse, the warehouse's stock reports may form part of that count. Ask your accountant what they will accept as a stocktaking.
Sole traders: cash basis or traditional accounting
GOV.UK says that from 6 April 2024, cash basis became the default method of accounting for sole traders and partnerships without corporate partners. Limited companies and limited liability partnerships cannot use it.2
| Cash basis | Traditional accounting | |
|---|---|---|
| When income and costs count | When you receive money or pay a bill | By the date you invoiced or were billed |
| Buying goods to sell | GOV.UK lists buying goods for resale as an allowable expense under cash basis | Ask your accountant how unsold stock is treated |
| Who it may suit | The default for sole traders and partnerships without corporate partners | GOV.UK says you might choose it if your business is complex, for example it has high levels of stock, or needs to get finance |
All of the rows above come from the GOV.UK cash basis guide.2 If you use traditional accounting, GOV.UK says you will need to keep more records and say so on your Self Assessment return.2 Which method suits you is worth asking an accountant, especially if you buy stock in large batches or hold a lot of it.
Signs your stock records may need help
This part is our judgement. It may be worth getting help if you don't know how much stock you hold or where, your stock is split between home and one or more warehouses, you sell the same product through several channels, or your profit figure changes a lot from year to year for no reason you can see.
Sources
- GOV.UK, "Running a limited company: Company and accounting records". GOV.UK. Checked 12 October 2026.
- GOV.UK, "Cash basis" (including "Overview", "How to record income and expenses" and "Cash basis before 6 April 2024"). gov.uk/simpler-income-tax-cash-basis. Checked 12 October 2026.