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HMRC internal manual

Business Income Manual

Stock: trading transactions in: goods sold subject to reservation of title

Goods are sometimes supplied to traders on terms whereby the supplier retains legal title to the goods for some time after they have been delivered. For example, motor vehicles are often supplied by importers and manufacturers to motor dealers on ‘consignment’ terms. (There is more guidance on motor dealers’ stock at BIM52001.)

The accountancy treatment will follow the substance of the transaction and not the legal form. A sale will be regarded as taking place at the point when the risks and rewards of the ownership of an asset are substantially transferred from the supplier to the recipient, even though legal title may not pass until later, for example when payment is made.

The precise accounting treatment adopted may sometimes affect the timing of the recognition of profit in the accounts. The treatment adopted, so long as it is in accordance with generally accepted accounting practice should normally be followed in computing trading profits for tax.

A report, with the file, should be made to CTISA (Technical):

  • where the accounting treatment of recurring transactions is changed to conform with GAAP,
  • where, on enquiry it turns out that the accounts of the supplier and the recipient do not treat the transaction the same way, for example as a result of divergent views of the substance of the transactions in question, or
  • in any other case of doubt or difficulty.