This category represents the running costs of a business that directly relate to the sales they are making. For example, it could be the costs of raw material, salaries for factory workers making the goods and even the postage of the finished goods.
What's included
Cost of raw materials.
Purchase price of goods to be resold.
Distribution costs such as freight or shipping costs.
Manufacturing businesses can include the direct cost of labour in the cost of goods sold.
What's not included
Postage of a letter.
Other expenses that are not in direct relation to the sale of your products.
Don’t include items received in the last accounting period that you paid for in this accounting period.
How is it taxed?
Typically costs of sales are wholly and exclusively for the purposes of your trade and as such will benefit from corporation tax relief. The recoverability of VAT on such costs will depend on the VAT charged to you by your supplier and the nature of your trade.
Tax tips
Typically costs of sales are wholly and exclusively for the purposes of your trade and as such will benefit from corporation tax relief. The recoverability of VAT on such costs will depend on the VAT charged to you by your supplier and the nature of your trade.