"We're a UK supplement brand doing about £2m a year, mostly our own store and TikTok Shop. What should we actually be accruing for returns, and for stock heading towards its expiry date?" Keep returns and expiry separate. Returns accounting uses a refund liability and a refund asset: the refunds you expect on delivered orders whose return rights are still open, plus an asset for the goods you expect back. Expiry is an inventory write-down: stock reduced to the net realisable value it can actually deliver. In the illustrative example below, a £2m brand carries about £4,900 of gross refund exposure at a typical month end, and its expiry write-downs run to about £10,000 a year when the evidence supports them. The interesting part is not the size of those numbers. It is what they stop your management accounts from hiding.
Review returns and inventory impairment monthly for management accounts. At each reporting date, recognise the full refund estimate and inventory write-down supported by the evidence then available. Do not spread an expected annual write-down evenly merely to smooth profit.
Here's the Short Version
- Keep returns and expiry separate. Returns accounting uses a refund liability and a refund asset, while expiry is an inventory write-down to net realisable value. They are not two like-for-like accrual liabilities
- The refund estimate covers delivered orders whose return rights remain open, so use delivery dates rather than order dates, and add any return requests not yet settled
- In the illustrative example below, a £2m brand shows about £4,900 of gross refund exposure at each month end, with recoverable goods carried as a refund asset rather than a second liability
- Expiry is measured, not guessed: if forecast sales will not clear the stock before its date, estimate the selling price after VAT, deduct the costs to complete and sell, and write down only where net realisable value is below cost
- The VAT angles mostly run themselves. Refunds come back off your output VAT in the period you pay them, and stock you scrap was never supplied, so no output VAT arises. Donations and seeding are a different story
- The habit that makes it work is a monthly returns and age report, plus an update of the estimates at each reporting date
Two Provisions, Two Different Jobs
Founders tend to lump returns and expiry into one "stuff that went wrong" number. They are separate problems, and they land in different places in your accounts. Keep them apart and each one is simple.
| Returns accounting | Expiry write-down | |
|---|---|---|
| What it covers | Refunds expected on open return rights, plus goods expected back | Stock carried above its net realisable value |
| Where it lands | Revenue, plus a refund asset that adjusts cost of sales | Profit or loss, through the inventory balance |
| What drives it | Return rate, window length, unsaleable share | Months of cover versus months of shelf life |
| The VAT angle | Output VAT adjusts down when refunds are paid | No supply, so no output VAT on scrapping |
None of this changes your cash on the day. What it changes is whether your management accounts tell you the truth: a P&L that ignores returns flatters revenue, and stock carried at full cost flatters assets. Both mistakes get expensive at the exact moment you are using those numbers to price a range or plan a Q4 order. We set out where these lines sit in our post on how a 7 figure supplement brand should structure their P&L.
What the Law Makes You Take Back
Start with the window, because it sets the size of the refund estimate. For anything you sell online in the UK, the customer can cancel for any reason within 14 days of the goods arriving. If they cancel, they have another 14 days to send the goods back, and you have to refund within 14 days of getting them back or seeing proof of posting, whichever comes first. If you offer to collect the goods, the refund clock starts when they tell you they are cancelling.
Three details shape what actually comes back:
One: you can refuse some change of mind returns outright. The cancellation right switches off for sealed goods that cannot be returned for health or hygiene reasons once they have been unsealed after delivery. That can cover a previously sealed supplement tub once opened where the product is genuinely unsuitable for return for health protection or hygiene reasons, but do not treat every opened tub as automatically exempt. TikTok separately lists unsealed health or hygiene products, including personal healthcare products, and products liable to deteriorate or expire rapidly, with food as an example. Faulty or damaged goods are a different story. Those rights stay alive whatever the seal has done.
Two: your policy sets your exposure, not just the statute. TikTok Shop gives eligible customers the statutory 14 day cancellation right and a separate extended returns benefit running until 30 days from delivery. The periods overlap, they are not added together. Refunds are processed through TikTok Shop, and where goods must be returned, the seller may defer the refund until it receives the goods or the customer supplies proof of postage, whichever comes first. Use any longer returns promise published on your own site when estimating exposure.
Three: refunds go one way. You refund the goods and, where they paid for standard delivery, the delivery cost too, and you cannot charge a fee for the refund itself. You can deduct for handling beyond what a shop would reasonably allow, but only that, and not if you failed to give the customer the required information about their cancellation rights. If you do not provide the required cancellation information, the cancellation period can continue until 12 months after the ordinary 14 day period would have ended. If you provide the information during those 12 months, the customer then has 14 days from receiving it.
One subscription wrinkle: for a contract for regular delivery of goods during a defined period, the cancellation period ends 14 days after the first delivery. It does not restart for each routine box, and your contract terms and other consumer law still apply after that period. If you sell on subscription, the returns exposure is front loaded.
| Clock | Length | Where it comes from |
|---|---|---|
| Statutory cancellation right | 14 days from delivery | Consumer Contracts Regulations 2013 |
| Regular deliveries, like subscription boxes | 14 days from the first delivery | Same regulations |
| TikTok Shop extended returns benefit | Until 30 days from delivery | TikTok Shop UK returns policy, June 2026 |
| Your own published policy | Any longer promise you publish | Your website |
Building the Returns Estimate
The mechanics are short. Estimate the refunds expected for delivered orders with live return rights or open return requests. Separately recognise an asset for goods expected back, measured at their former carrying amount less recovery costs and any expected reduction in value. Do not add a second liability for the landed cost of goods expected to come back unsaleable. The judgement sits in the inputs, so take them one at a time.
The exposure pool. Estimate expected refunds for delivered orders whose return rights remain open, plus return requests that have not yet been settled and any other refunds you expect to make. Use delivery dates rather than order dates. On £2m of annual customer takings, a simple last 30 days of delivered sales is about £164,400, and it is only an approximation.
The rate. A reasonable starting point is your own recent actuals, say the trailing three to six months, rather than a gut feel, split by reason: faulty and damaged returns behave differently from change of mind, and subscriptions differently from one off orders. The example below uses 3% across the board, but the split is where you find the fixable half. If you sell on Shopify, our guide to Shopify returns accounting covers the platform side of that report.
The refund value. For an eligible full refund of a standard-rated item, the refunded item price includes VAT, so of each refund, one sixth is VAT that comes back off your next VAT return and five sixths is revenue that has to reverse. The delivery-cost rule and any lawful diminished-value deduction must be applied separately.
Put those together for the illustrative brand, keeping the £2m in mind for what it is: VAT-inclusive customer takings, not accounting revenue. Before expected returns, the VAT-exclusive amount is about £1,666,667. The gross customer refund exposure is about £4,932, comprising £822 of VAT and £4,110 of VAT-exclusive revenue. Based on one unit per returned order, the related refund asset is about £710 before recovery costs. The expected £473 cost of unsaleable returns is reflected by recognising a lower refund asset, not by adding another liability.
Why run this monthly rather than at year end? Because a sale with a right of return is not fully earned when the parcel leaves. The revised FRS 102 revenue rules, mandatory for accounting periods starting on or after 1 January 2026, point the same way: recognise the revenue you expect to keep, carry a refund liability for expected returns, and hold an asset for the goods you expect back, reduced for expected recovery costs and for damage or obsolescence. FRS 102 requires both to be updated at each reporting date, so for monthly management accounts, update the estimates monthly using the latest available evidence.
What a Return Really Costs You
Annualise the illustrative brand and the true shape appears. Customer takings £2m, 80,000 orders at £25 each, a 3% return rate, so 2,400 orders come back, and the brand covers the return label at £3.50 to keep stock flowing back rather than disappearing into customers' cupboards.
| Line | Year |
|---|---|
| Refunds paid to customers | £60,000 |
| Output VAT adjusted back as refunds are paid | −£10,000 |
| Stock recovered and resellable, at cost | −£8,640 |
| Return labels the brand covers | £8,400 |
| Processing fees retained on refunds (illustrative £0.60 on each of 2,400) | £1,440 |
| Net cost of returns | £51,200 |
That is about 2.6% of takings, and it includes the £5,760 of stock that came back opened or damaged. Three footnotes. Stripe standard pricing, Shopify Payments and PayPal currently do not return the original processing or payment receiving fee when a payment is refunded, although payment method, region, plan and custom terms can differ, so check your own contract. If you do not provide a prepaid label, return completion rates may differ, so track return requests, refunds paid, goods received and returnless refunds separately. And on TikTok Shop the commission base is net of refunds, so you are not paying 9% commission on a sale you gave back, though commission already settled to an affiliate may behave differently. You are still paying the label and losing the stock, and those stay in your numbers.
For the VAT mechanics behind refunds, we went deeper in our post on how high return rates impact your VAT and bottom line.
The Expiry Write-Down: Stock That Will Not Sell
Your tubs carry a best before date that speaks to quality rather than safety. Food may legally be sold or redistributed after that date if it remains safe and of the nature, substance and quality consumers would expect, but plenty of brands choose never to ship supplements past their date, and that is a commercial policy rather than a legal rule. Some marketplaces, wholesalers and retailers also impose minimum remaining shelf-life requirements, so check each channel's current terms. For the accounts, the point is this: some imported batches will eventually need a write-down, and the amount has to come from SKU and batch evidence rather than an assumed percentage.
The warning sign comes from one comparison: months of cover against months of shelf life left. If a SKU has 600 units left, sells 100 a month, and has six months of life left, it clears. If the same 600 units sell 60 a month, 360 will go and 240 will still be on the pallet past their date, and at a £6 landed cost that is £1,440 of cost at risk. That is a sell-through forecast, not the write-down calculation. If forecast sales will not clear the stock, estimate the selling price after VAT and deduct the costs to complete and sell, then write inventory down only where that net realisable value is below cost.
Run that test across the range and you get a simple ladder, which is also how you organise the review. Use the shelf-life bands as operational prompts only. The write-down itself is always measured, not assigned.
| Shelf life left | The action | What it means for the accounts |
|---|---|---|
| 12 months or more | Pick on FEFO, first expiry first out | Nothing special; assess for impairment like any other stock |
| 6 to 12 months | Watch list. Push into bundles and subscriptions | Flag the batch for the next review |
| 3 to 6 months | Clearance pricing, smaller packs | Re-estimate net realisable value for the batch |
| Under 3 months | Bundle, discount, or plan disposal | Write down to the lower net realisable value estimate |
| Past the date | Follow your policy on disposal | Carry at nil only if net realisable value really is nil |
One VAT warning on the bottom rows: donation and seeding are not the same as scrapping. A free business gift can create output tax based on cost unless a specific exception applies, so review the VAT treatment before using those routes.
Here is the illustrative shape for the £2m brand: £300,000 of stock on hand at cost, and £36,000 of it within six months of its best before date. Of that short dated block, £22,000 sells through at full price. The £9,000 block contains 1,500 units at £6 cost; assume net realisable value after VAT and all costs to complete and sell is £2.70 per unit, so the block is carried at £4,050 and written down by £4,950. Adding £5,000 of stock with nil net realisable value gives a total write-down of £9,950, about £10,000. That is the full impairment the evidence supports at the reporting date. The £830 a month equivalent is only an annualised illustration for planning, not a figure to spread evenly through the year.
Two points keep you right with the rules. The write-down is measured at the lower of cost and net realisable value: the estimated selling price after VAT less the costs to complete and sell, the same principle that goes back to Whimster v CIR in 1925 and sits in HMRC's Business Income Manual today. If the write-down is deductible, it reduces taxable trading profit, and the cash tax effect depends on the company's circumstances: it can be 19%, 25%, or an effective marginal rate of 26.5% in the marginal relief band, before allowing for associated companies and other adjustments. A general provision not tied to the evidence is the kind of thing HMRC will push back on. If you want the mechanics of clearing dead stock properly, we covered it in our piece on the dead stock strategy.
One practical note: this all runs on batch data. Your 3PL's stock report needs to show batch dates, not just SKUs and volumes. If it does not today, that is the first fix, because no spreadsheet can age stock it cannot see.
The VAT Side of Both
The VAT mechanics here are friendlier than most founders expect, and they follow one idea: VAT follows the supply.
Refunds. When you refund a customer, you adjust the output VAT you declared on that sale, in the VAT period the refund is paid rather than the period of the original sale. If you issue credit notes, they need to carry the standard details and be issued within 14 days of the refund going out. For ordinary consumer sales no VAT invoice is usually required, and a credit note is generally only needed if a VAT-registered customer asks for one, so what really matters is that your records show the reduction clearly. Keep the refunds report with your VAT papers rather than treating the platform settlement as one big net number.
Scrapped stock. Expired stock that you destroy is never supplied to anyone, so no output VAT arises on the write-off. If the input VAT was validly reclaimed because the stock was bought for taxable business activity, later destruction does not normally require that input VAT to be repaid. This assumes there has been no change to exempt, private or non-business use. Keep evidence of the stock, the reason for destruction and the disposal, so there is a trail if anyone asks.
Clearance sales. When you clear stock, output VAT is based on the amount the customer actually pays, not what the tub would have cost. Same rule as any discount: VAT follows the price.
Platform mechanics. On TikTok Shop the refund is deducted from your settlement, so the cash side self corrects inside the payout report. The VAT side is still yours to adjust, and the refunds report is where you prove it.
The Monthly Routine That Keeps It Honest
The routine is three habits, repeated monthly, plus a check whenever the numbers move. The full month end discipline sits in our 12 step monthly accounting checklist for DTC brands.
One, the returns report, by reason and by SKU. Refunds processed, split by faulty, damaged, change of mind and not received, and split by subscription versus one off orders. It tells you whether the rate is drifting, and it catches the SKU that keeps arriving damaged before it eats a quarter.
Two, update the estimates, not one accrual. At each month end, the returns side needs the estimated gross refund exposure and the refund asset for goods you expect back. The expiry side needs the full write-down supported by the evidence at that date. For the illustrative brand:
| Item | Illustrative amount |
|---|---|
| Estimated gross refund exposure, 30 days of delivered sales | £4,932 |
| VAT element, adjusted as refunds are paid | £822 |
| Refund asset for goods expected back, before recovery costs | About £710 |
| Expiry write-down recognised when the evidence supports it | About £10,000 |
Do not add those into a single total. They are separate balance sheet items, and the £473 and £830 figures used through the examples above are cost illustrations, not additional month-end liabilities.
Three, read the age report from your 3PL. Batch dates, months of cover, months of life, SKU by SKU, checked against the net realisable value test. It takes minutes if the report is clean. If it is not, that is your fix list, not a reason to skip it.
The check runs the other way too: if actual outcomes differ materially from your estimates, investigate the causes and update the assumptions prospectively. Do not assume that any fixed test proves the inputs are wrong.
FAQ
How much should a supplement brand accrue for returns each month?
Estimate the refunds you expect for delivered orders whose return rights are still open, plus any return requests not yet settled, and carry an asset for the goods you expect back. A £2m brand on a 30 day window with a 3% return rate shows about £4,900 of gross refund exposure at each month end. Use delivery dates rather than order dates, and use any longer returns promise published on your own site.
Do we get VAT relief when we write off expired stock?
There is no output VAT to relieve, because destroyed stock is never supplied, so the write-off itself carries no VAT charge. If the input VAT was validly reclaimed when you bought the stock for taxable business activity, later destruction does not normally require it to be repaid. On corporation tax, the write-down reduces taxable trading profit, and the cash tax effect can be 19%, 25% or an effective marginal rate of 26.5% in the marginal relief band.
Can we refuse a return when the customer has opened the tub?
Sometimes, but test it rather than assuming. A previously sealed tub can qualify for the health or hygiene exception once opened where the product is genuinely unsuitable for return, and TikTok lists unsealed personal healthcare products in the same carve out. Do not treat every opened tub as automatically exempt. Faulty or damaged goods are different: the customer's legal rights stay alive no matter what the seal looks like.
The Bottom Line
Returns and expiry are not noise around the edges of a supplement brand's accounts. They are real money, and together they can run at a few percent of takings. Estimate the refunds you expect on delivered orders whose return rights are open, carry an asset for the goods you expect back, and write stock down to net realisable value where the evidence says you should, recognising the full amount at the reporting date. The VAT mechanics fall where they fall: refunds adjust your output VAT in the period you pay them, and scrapped stock never was supplied. Do this and the number in your management accounts stops being a guess.
If you want us to build the returns and expiry estimates into your month end properly, that is exactly the kind of work we do for UK supplement brands between £1m and £20m. We are specialist social commerce accountants, we look at these numbers every week, and we will tell you plainly what your stock and returns are really costing you. Book a call and we will go through it with you.