TC09615 - [2025] UKFTT 01016 (TC)

Mr Gordon began by pointing out that some of the valuations used in HMRC’s profit and loss accounts appeared to be on a mark-to-market basis. He said that GAAP requires that stock be valued at the lower of cost and net realisable value (“NRV”): on other words, if the value of a horse decreased below cost over the accounting period, that decrease is taken into account, but if it increased above cost, accounts are compiled on the basis of cost.

Mr Waldegrave accepted that GAAP requires stock to be valued at the lower of cost and NRV. However, he said that where (a) the value of a horse had been reduced (“impaired”) in one period, but (b) the impairment was reversed in a subsequent period so that the horse’s value increased again, then (c) that increase in value should be taken into account for GAAP as long as it was not above cost.

Mr Gordon did not disagree in principle, but drew attention by way of example to a particular foal born in 2011 which Mr Tinkler had valued at £70,000 in his 2011-12 accounts. HMRC’s profit and loss account for the following year had included the foal at the increased value of £72,700. Mr Gordon said there was plainly no impairment here, and that instead the foal appeared to have been revalued on a mark-to-market basis.

Having taken instructions, Mr Waldegrave confirmed that HMRC would review the stock adjustments made in the profit and loss accounts, and revert to Mr Tinkler or his representative as appropriate if there were errors. The following part of this decision is thus relevant only if HMRC maintain their position that the opening and closing stock values had been incorrectly calculated by Mr Tinkler.