Stock and Work in Progress — Year-End Valuation for Trade Businesses (2026)

What Stock and Work in Progress Actually Mean

Both stock and work in progress are things you've paid for that haven't yet turned into invoiced income at your accounting year-end date. The accounts have to recognise that you still hold that value — it hasn't been "used up" yet.

Stock (inventory) for a trade business is materials and consumables you've bought but not yet used or sold on a job at the year-end date. Think of the cable, pipe fittings, timber, paint, fixings and sundries sitting on your van or in the lock-up that haven't gone onto a customer's job yet. You've paid for it, but on the year-end date it's still an asset you own.

Work in progress (WIP) is the value of part-completed jobs at the year end. It's the materials already used on a job, plus the labour and an appropriate share of overheads, on jobs you've started but not yet finished or invoiced. If you're three days into a five-day bathroom installation when your year ends, the work you've put in so far is WIP — real value sitting in a job that hasn't become income yet.

The Key Principle — Closing Stock Is Added Back

This is the part that surprises people. The accounting principle is called matching: costs should be matched to the period in which the related income is earned. So if you buy materials in one year but don't use them until the next, the cost of those materials should fall in the year you actually use them — not the year you bought them.

In practice this works through closing stock and WIP being carried forward and added back. When you total up your purchases for the year, you then deduct the value of stock and WIP still on hand at the year end. That deduction removes those items from this year's costs — so they are not treated as a cost in the year you bought them. The effect is to increase your taxable profit for the year.

This is why the common belief that buying lots of materials just before year-end cuts your tax bill is wrong. If the materials are still on hand and unused at the year-end date, they're closing stock — they get added back, and they don't reduce your profit at all. They only become a cost once they're used on a job that generates income.

The flip side is the new year. Your opening stock and WIP (which is just last year's closing figure brought forward) is a cost of the new year. As you use up that stock and complete those jobs, the value flows through as a cost against the income they generate. So nothing is lost — the cost is simply recognised in the right period.

A Worked Example

Say you're a sole-trader electrician using traditional accruals accounting. Over the year you make £90,000 in sales and your total purchases and expenses come to £55,000, which would suggest a profit of £35,000. But on your year-end date you have £3,000 of unused materials in the van and lock-up — cable, consumer units, sockets and fittings bought but not yet installed on any job.

That £3,000 is closing stock. It gets added back, removing it from this year's costs:

• Sales: £90,000
• Purchases and expenses: £55,000
• Less closing stock added back: (£3,000)
• Adjusted costs: £52,000
• Taxable profit: £38,000 (not £35,000)

Your profit is £3,000 higher because of that unused stock — and you pay tax on the extra. Next year, when you fit those materials, the £3,000 becomes opening stock and a cost of that year, reducing next year's profit instead. The tax isn't avoided by stockpiling; it's just deferred to when the materials are actually used.

How to Value Stock — Lower of Cost and NRV

Stock is valued at the lower of cost and net realisable value (NRV). Cost is what you paid for the item. NRV is what you could reasonably expect to get for it, less any costs of selling or finishing it. You take whichever figure is lower.

For most trade stock, cost is the figure you use — a box of fittings you paid £40 for is valued at £40. NRV only comes into play when stock has fallen in value: materials that are damaged, obsolete, discontinued or part of a job that has been cancelled. If you bought specialist parts for a job that fell through and you'd only get £200 for parts that cost £500, you value them at the £200 NRV. You never value stock above what you paid for it, and you write it down if it's worth less.

What Goes Into Work in Progress

WIP is valued at cost, and for a part-completed job that means three things added together:

• Direct materials already used on the job
• Direct labour — the cost of the time your employees or subcontractors have put into the job so far
• Attributable overheads — an appropriate share of the running costs that relate to getting the job to its current stage

One point trips up sole traders in particular: you generally do not include a value for your own labour as the proprietor in WIP. Your own time isn't a cost to the business in the way an employee's wage is — you're not paid a salary, you draw profit. So a sole trader's WIP is usually just materials used plus any paid subcontractor or employee labour and attributable overheads, not a notional charge for the owner's hours.

Value WIP at Cost, Not Selling Price

WIP is valued at cost — you must exclude the profit element. It can be tempting to value a part-finished job at what you'll eventually charge for it, but that would mean booking profit before the job is done and the income is earned, which isn't allowed. If a job will invoice at £2,000 and you've incurred £800 of cost so far, the WIP value is £800, not some proportion of the £2,000 selling price. The profit only appears in your accounts when you complete and invoice the job.

Do a Stocktake and Keep a Stock Sheet

To value stock and WIP you need to count what you've got. A year-end stocktake done on or close to your accounting year-end date is the way to do this properly. Walk the van, the lock-up and any storage, and list what's there.

Keep a stock sheet as your record: description, quantity, unit cost and total value for each line, plus a separate schedule of part-completed jobs with their WIP cost build-up. This sheet is what your accountant uses to make the adjustment, and it's the evidence HMRC would expect to see if your figures were ever queried. Date it and keep it with your year-end records.

Cash Basis vs Accruals — A Big Difference

Whether you have to value stock and WIP at all depends on how you account. Many small unincorporated trade businesses (sole traders and partnerships) use the cash basis, where you simply record money in and money out. Under the cash basis you generally do not carry forward stock and WIP the way described above — a payment for materials is a cost when you pay for it, and income is recorded when you're paid. There's no year-end add-back of unused stock, which makes the bookkeeping much simpler.

Under traditional accruals accounting (the basis limited companies must use, and which some larger sole traders use), you must value closing stock and WIP and carry them forward. This is where the matching principle, the add-back and the profit effect all apply.

So the same pile of unused materials at year-end is treated differently depending on your basis: under accruals it's added back and increases this year's profit; under the cash basis it was simply a cost when you paid for it. Which basis suits you depends on your size, structure and circumstances — that's a conversation to have with your accountant.

Retentions and Long Contracts

On larger jobs, particularly construction and commercial work, you may have retentions — a percentage of the contract value (often around 5%) held back by the customer until a defects period has passed. Retentions and the treatment of long-term contracts that straddle a year-end add complexity to how income and WIP are recognised, with revenue typically matched to the stage of completion. The detail goes beyond this guide, but if you do project work with retentions or contracts spanning your year-end, flag it to your accountant so it's recognised correctly.

Quick Reference: Stock and WIP Treatment

The Bottom Line

Stock and WIP matter because they decide which year your costs land in. Under accruals accounting, unused materials and part-finished jobs at your year-end are added back, which raises this year's taxable profit — so stockpiling materials before year-end won't cut your tax bill if the stock is still on hand. Value stock at the lower of cost and NRV, value WIP at cost excluding profit, keep a dated stock sheet, and know whether you're on the cash basis or accruals.

This is general guidance, not advice, and your accountant prepares your accounts and applies the correct treatment to your specific circumstances. The best thing you can do is keep clean records of what you bought, what you used and what jobs were open at the year end — that's what makes the year-end valuation accurate and the conversation with your accountant straightforward.