UK Sage 50 Inventory: FIFO vs. LIFO vs. Weighted Average (Tax Impact: £2K Difference)
Inventory costing method (FIFO vs. weighted average) affects taxable profit. Buy widgets at £10, then £12, then £15. Sold 5 at £20. Under FIFO: COGS £50 (first 5 at £10). Under weighted average: COGS £55 (£12 avg cost). Profit difference: £5 = £1 tax difference. On £100K inventory turnover, method difference can be £2K+.
UK Inventory Costing Rules#
HMRC allows: (1) FIFO (First In First Out). (2) Weighted average. NOT allowed: LIFO (Last In First Out, allowed in US but not UK). FIFO assumes oldest stock sells first. Weighted average spreads cost across units. In inflationary environment: FIFO = higher COGS = lower profit = lower tax. Weighted average = middle ground.
The Tax Impact#
Buy 100 units at £10 (cost £1,000). Buy 100 units at £15 (cost £1,500). Sell 80 units at £20. Under FIFO: COGS = 80 × £10 = £800. Profit = £1,600 - £800 = £800. Tax: £160 (at 20% corp tax). Under weighted average: COGS = 80 × £12.50 = £1,000. Profit = £1,600 - £1,000 = £600. Tax: £120. Difference: £40 per batch. On 1,000 batches/year: £40K profit difference = £8K tax difference.
AskBiz calculates COGS under both FIFO and weighted average.
AskBiz Costing Method Comparison#
AskBiz calculates COGS under both FIFO and weighted average. Shows: (1) Profit impact. (2) Tax impact. (3) Recommendation based on your inventory turnover. "Your inventory is slow-moving (high carrying costs). Weighted average minimizes tax. Recommendation: weighted average."
Data-backed guides on AI, eCommerce, and SME strategy — straight to your inbox.
- Inventory costing method (FIFO vs.
- weighted average) affects taxable profit.
- Buy widgets at £10, then £12, then £15.
People also ask
Can I change costing method mid-year?
No. Must choose one and stick with it for tax year. Changing requires HMRC approval and can trigger audit.
Which method is best?
Depends on: inventory turnover (fast = FIFO works well), inflation (high = FIFO better for tax). AskBiz calculates both.
Our team combines expertise in data analytics, SME strategy, and AI tools to produce practical guides that help founders and operators make better business decisions.
Choose the Right UK Inventory Costing Method
AskBiz calculates FIFO vs. weighted average impact on profit and tax. See tax savings potential. Make informed decision. Try free.
Connects to Shopify, Xero, Amazon, QuickBooks, Stripe & more in minutes