Every business with surplus stock eventually faces the same question: should we write it off or sell it at a clearance price? Both options remove unwanted inventory from your balance sheet, but they have very different implications for your tax bill, your cash flow, and your P&L.
This guide breaks down both options with real numbers so you can make the right call for your business.
What Is an Inventory Write-Off?
An inventory write-off is an accounting entry that recognises stock as having no recoverable value. The stock is removed from the balance sheet, and the cost of that stock is recorded as an expense — reducing your taxable profit.
There are two types:
Write-down — reducing the carrying value of stock to reflect its current market value (e.g., from £50,000 to £10,000). The stock remains on the books at the lower value.
Write-off — reducing the carrying value to zero. The stock is treated as having no value at all.
In both cases, the reduction in value flows through to your profit and loss account as a cost, reducing your taxable profit.
What Happens When You Sell at Clearance Price?
When you sell stock below cost, you make a loss on that stock. The accounting treatment is:
- The stock is removed from the balance sheet at its cost value
- The sale income is recorded as revenue
- The difference between cost and sale price is a loss, which reduces taxable profit
The key difference from a write-off is that you receive cash. The loss is real, but it is partially offset by the money coming in.
Side-by-Side Comparison
Let us use a concrete example. A business has surplus stock that cost £100,000 to purchase. The stock has a retail value of £200,000 but is no longer selling through normal channels.
| Factor | Full Write-Off | Sell at 10% of Retail (£20,000) |
|---|---|---|
| Cash received | £0 | £20,000 |
| Cost of goods (already paid) | £100,000 | £100,000 |
| Loss recognised | £100,000 | £80,000 (cost minus sale price) |
| Corporation tax saving (25%) | £25,000 | £20,000 |
| Net financial outcome | -£75,000 | -£60,000 (£20,000 cash minus £80,000 loss + £20,000 tax saving) |
| Stock remaining | May need physical disposal | Collected by buyer |
| Cash flow impact | Negative (disposal costs) | Positive (£20,000 received) |
The maths is clear. Even at a steep discount, selling recovers cash that a write-off does not. The tax saving from a write-off is larger (because the loss is larger), but it never compensates for the cash you could have received.
For the detailed tax treatment of selling stock at a loss, see our guide to tax implications.
The Tax Treatment in Detail
Write-Off Tax Treatment
When stock is written off, the cost of that stock is recognised as an expense in the period the write-off occurs. For a company paying 25% corporation tax:
- £100,000 write-off creates a £100,000 expense
- Tax saving: £100,000 x 25% = £25,000
- But you still lose the other £75,000 — it is gone
The tax saving is real, but it is a saving on a loss, not a profit. You are recovering 25p for every £1 lost.
Clearance Sale Tax Treatment
When stock is sold at a loss:
- Sale revenue: £20,000 (taxable income)
- Cost of goods sold: £100,000 (deductible expense)
- Net loss: £80,000
- Tax saving on loss: £80,000 x 25% = £20,000
- Total benefit: £20,000 cash + £20,000 tax saving = £40,000 recovered
You recover 40p for every £1 of original cost, compared to 25p from a write-off.
VAT Considerations
If you are VAT-registered:
Write-off: No VAT implications on the write-off itself. However, you cannot normally reclaim the input VAT already claimed on the stock simply because you are writing it off. HMRC may query large write-offs.
Clearance sale: Output VAT is due on the sale price (not the original cost). On a £20,000 sale, you would charge £4,000 VAT (standard rate) and remit it to HMRC. Your net cash receipt is the sale price.
When a Write-Off Makes Sense
Despite the financial disadvantage, there are situations where writing off stock is the right call.
Damaged or hazardous goods. Stock that is genuinely unsaleable — water-damaged, contaminated, or recalled — cannot be sold to any buyer. Write-off and disposal are the only options.
Negligible quantities. If you have a small amount of surplus stock that no buyer would collect, the transaction cost of arranging a sale exceeds the recovery. Writing it off is more practical.
Regulatory restrictions. Some products — pharmaceuticals, certain chemicals, food past its use-by date — cannot legally be resold. Write-off and certified destruction may be required.
Stock with no secondary market. Highly bespoke or custom-made items with no alternative buyer may genuinely have zero recovery value.
When Selling Is Better (Almost Always)
For the vast majority of surplus stock situations, selling to a clearance buyer is the better option.
| Scenario | Recommended Action |
|---|---|
| Overstock of current-range products | Sell — strong clearance demand |
| End-of-line / discontinued products | Sell — buyers actively seek these |
| Customer returns (graded) | Sell — established resale market |
| Seasonal stock post-season | Sell — buyers store for next season |
| Branded goods | Sell — brand value increases clearance price |
| Mixed general merchandise | Sell — job lot buyers will take it |
| Damaged but functional goods | Sell — graded goods market exists |
| Obsolete technology | Sell if recent — WEEE recyclers may pay for components |
| Bespoke/custom items | Assess — may need write-off |
| Recalled or restricted products | Write off — cannot be sold |
The Hidden Cost of Write-Offs That People Miss
Writing off stock does not make it disappear. The physical goods still exist and still need to be dealt with.
Disposal costs. Sending stock to landfill costs money — skip hire, waste carrier fees, and landfill tax (currently £103.70 per tonne for standard waste). A large write-off of bulky goods can cost thousands to physically dispose of.
Environmental liability. Businesses have a duty of care for waste disposal. Improper disposal can result in fines. WEEE items (electronics) require certified recycling.
Space occupied. Written-off stock sitting in your warehouse still occupies space you are paying for. The holding costs continue until the stock is physically removed.
A clearance buyer eliminates all three problems. They collect the stock at their expense, they handle onward distribution or recycling, and they free up your space on the day of collection.
Using the Numbers to Decide
Our stock valuation calculator can help you estimate what a clearance buyer might pay for your surplus stock. Compare that figure against the write-off scenario using this simple framework:
If clearance value > 0: Selling is almost certainly better. You get cash plus a tax deduction on the loss. The write-off gives you only the tax deduction.
If clearance value = 0 but disposal costs > 0: Check whether a clearance buyer will take the stock for free (no payment either way). Free collection saves you disposal costs.
If clearance value = 0 and no buyer will take it: Write off and arrange disposal. Claim the full cost as a tax deduction.
Accounting Impact on Financial Statements
Both options affect your financial statements, but differently.
Balance sheet: Both options remove the stock from inventory. The balance sheet impact is the same.
P&L: A write-off shows a larger loss but no revenue. A clearance sale shows revenue (which is positive) offset by a larger cost of goods sold figure. The net P&L impact is worse for a write-off because there is no offsetting revenue.
Cash flow statement: A write-off has zero or negative cash flow impact (disposal costs). A clearance sale has a positive cash flow impact (sale proceeds).
For businesses approaching year-end or reporting periods, the optical difference matters. Showing some revenue recovery alongside the loss looks better to stakeholders than a pure write-off.
Summary
In almost every scenario, selling surplus stock to a clearance buyer delivers a better financial outcome than writing it off. You receive cash, reduce holding costs, avoid disposal fees, and still get a tax deduction on the loss. The only situations where a write-off is preferable are when stock is genuinely unsaleable — damaged, restricted, or so niche that no buyer exists.
Before writing off surplus inventory, get a clearance quote. You may be surprised at what buyers will pay for stock you assumed was worthless.
Contact Pay For Clearance for a free, no-obligation valuation of your surplus stock.