Annex 1: Minor Changes in the Law Change 39: Trading income: valuation of stock: sections 164 to 167 and Schedule 1
This change relaxes the conditions that apply if stock or work in progress is to be valued at the price actually paid when that stock or work in progress is transferred between persons who carry on trades, professions or vocations. It removes an unnecessary distinction between trades, professions and vocations.
It is possible for the same thing to be stock for one taxpayer but work in progress for another. Examples are the “incomplete services” part of stock (see section 100(2)(b) of ICTA, rewritten as section 163(2) of this Act) and the “materials” part of work in progress (see section 183(1) of ITTOIA).
The usual rule is that stock and work in progress are valued when a person ceases to carry on a trade profession or vocation at:
	open market value (stock – section 100(1)(b) of ICTA, rewritten for income tax as section 175(4) of ITTOIA and in this Act as section 164(4)); or
	arm’s length value (work in progress – section 101(1)(b) of ICTA, rewritten for income tax as section 184(2) of ITTOIA).
But in each case there is an exception if the stock or work in progress is transferred to a person who carries on, or intends to carry on, a trade, profession or vocation in the United Kingdom and is entitled to deduct the cost of the stock or work in progress in calculating the profits of that trade, profession or vocation. In that case, the transfer takes place for tax purposes at the price actually paid (subject to special rules where the buyer and seller are connected or an election is made).
In the case of work in progress, the “actual price” basis of valuation applies only if the transferee carries on, or intends to carry on, a profession or vocation. This means that work in progress of a profession or vocation which is transferred to a trader (for whom it is trading stock) strictly does not qualify for the “actual price” basis of valuation.
In the case of trading stock, the “actual price” basis of valuation applies only if the transferee carries on, or intends to carry on, a trade. This means trading stock of a trade which is transferred to a person carrying on a profession strictly does not qualify for the “actual price” basis of valuation.