Damaged and obsolete stock: input tax and write-offs

Every business that holds stock eventually faces inventory that cannot be sold — damaged in handling, past its useful life, or simply obsolete. Writing it off is an accounting reality, but it carries a sales tax consequence that is easy to miss: the input tax you already claimed on that stock. And if you sell the stock cheaply instead of writing it off, a different rule applies. This guide covers both.

Write-offs and input tax

When you claimed input tax on stock, it was on the basis that the goods would be used to make taxable supplies. Stock that becomes damaged or obsolete and is written off never reaches a taxable supply — so the input tax attributable to it can fall to be reversed. This mirrors the treatment of goods lost or destroyed: input credit is meant to follow inputs into taxable output, and a write-off breaks that chain. Writing stock off is therefore not automatically neutral for sales tax; the input side may need adjusting. The precise mechanism and any thresholds depend on the current rules and should be confirmed, but the point is to recognise that a write-off has an input-tax dimension rather than assuming it is a purely accounting event.

Selling damaged stock is still a supply

Often the better commercial choice is to sell damaged or obsolete stock at a reduced price rather than write it off — and that changes the analysis entirely. A sale of the stock, however cheap, is still a supply of taxable goods, and sales tax applies on the actual consideration received. Selling at a low price reduces the tax because the taxable value is lower, but it does not remove the supply. This is the opposite of a write-off: here there is a sale, so there is output tax, on whatever you actually get. Confusing the two — treating a cut-price clearance as if it were a tax-free write-off — is a straightforward error that leaves output tax undeclared.

Document the write-off

A write-off must be documented and approved, not simply adjusted into the accounts. That means internal approval of the write-off, records identifying the specific stock and why it is unsaleable, and evidence of its disposal or destruction. An unsupported write-off invites the same suspicion as an undocumented loss: that the stock was in fact sold off the books and the "write-off" is cover for a suppressed sale. Good documentation both supports the input-tax treatment and demonstrates that the stock genuinely left the business without a hidden sale.

Common mistakes

• Treating an inventory write-off as neutral for sales tax and ignoring the input tax previously claimed.
• Selling damaged or obsolete stock cheaply without charging output tax on the consideration received.
• Adjusting a write-off in the books with no approval, disposal evidence or item records.
• Blurring the line between a genuine write-off and stock quietly sold off the books.

Where it fits

Write-offs are the deliberate cousin of accidental losses, both turning on the input-tax principle that credit follows goods into taxable supplies. Where obsolete goods are sold as scrap or waste, that sale has its own treatment, and the whole area rests on getting input and output tax right. Document the write-off, and tax any actual sale on what you receive.

Sources

This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.

• Sales Tax Act 1990, amended through 30 June 2026 (FBR)
• Sales Tax Basics (FBR)

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