Are sole proprietors required to take inventory of their goods?

Sole proprietors are not generally required to take inventory of their goods every year. The rules requiring annual inventory before financial reporting apply to legal entities. However, the tax authority may require a sole proprietor to take inventory during an audit. Some types of business have special rules, and an entrepreneur who becomes required to keep records of stock must prepare an opening inventory of the goods on hand.

A shop owner should determine whether mandatory stock records are required, ensure access to documents for the goods, and set a schedule for counts. During an inventory, record the actual quantities, check the reasons for discrepancies, and document losses. If the sole proprietor is a VAT payer, a shortage may also require VAT liabilities to be accrued.

Why annual inventory is not mandatory for every sole proprietor

In a shop, an inventory count usually means counting goods and comparing the result with the stock records. For example, the software shows 50 packs, but an employee finds 47. An inventory may also cover equipment, cash, and other property.

Article 10 of Law No. 996-XIV requires enterprises to conduct inventory. The scope of this law, as defined in Article 2, covers legal entities and the relevant branches and representative offices of foreign legal entities. Clause 2 of Section I of Regulation No. 879 likewise applies its rules to legal entities. Sole proprietors are not included in this list.

Therefore, the annual inventory deadlines, the composition of the commission, and the deadline under Regulation No. 879 to approve its minutes within five working days after the inventory is completed do not become mandatory for an entrepreneur simply because they have a shop or employ sales staff. For a voluntary inventory, a sole proprietor may use this procedure as the basis for their own instructions.

When a sole proprietor must count and list goods

At the tax authority’s request during an audit

Subparagraph 20.1.9 of the Tax Code allows the supervisory authority to require a taxpayer being audited to inventory fixed assets, goods, and funds, including counting stock and cash. This right also applies to sole proprietors.

The State Tax Service of Ukraine (STS) explains that the taxpayer must receive a properly completed written request. Tax legislation does not prescribe a single approved form for such a request. STS representatives may be present during the inventory. STS guidance on inventory during an audit.

1. Receive the written request and keep proof of the date you received it.
2. Check which goods, funds, or equipment must be covered and what deadline the tax authority has set. If the scope or deadline is unclear, promptly ask the official for a written explanation.
3. Assign employees to count the goods and prepare documents showing their receipt, sales, returns, and transfers.
4. Record the actual balances and discrepancies in an inventory list or report. State the date, location, list of goods checked, units of measure, quantities, and participants in the count.
5. Submit the results to the supervisory authority and keep proof of submission.

If accessing the goods is unsafe or physically impossible, submit a reasoned written statement to the supervisory authority describing the obstacles and attaching supporting documents. During martial law, subparagraph 69.2-2 of paragraph 69 of Subsection 10 of Section XX of the Tax Code allows documentary and factual audits only when safe conditions are available, including for inventory. If an audit that has already started cannot be completed because of such obstacles, it is suspended by an order of the head of the supervisory authority, their deputy, or an authorized person until the obstacles are removed. The Code provides exceptions for certain documentary audits: taxation of nonresident income under subparagraph 78.1.1, budget VAT refunds under subparagraph 78.1.8, and audits under subparagraph 78.1.21. Submitting a statement does not itself suspend the audit. Do not sign an inventory list showing quantities that no one actually checked.

Refusing an inventory required under the Tax Code is grounds for an administrative seizure of property under subparagraph 94.2.8. The decision to impose an administrative seizure of property is made by the head of the supervisory authority, their deputy, or an authorized person. A separate procedure applies to funds in an account or electronic wallet: under subparagraph 94.6.2, seizure is possible only by court order, which the supervisory authority must seek. Under paragraph 94.10, the court must review the grounds for the decision of the head of the supervisory authority, their deputy, or an authorized person to impose an administrative seizure of property within 96 hours; hours falling on weekends and public holidays are not included in this period.

Licensees trading in alcohol, tobacco products, e-cigarette liquids, or fuel face an additional consequence. Clause 12 of Part 2 of Article 46 of Law No. 3817-IX provides for termination of the relevant license if the licensee refuses an inventory during a documentary on-site or factual audit. The tax authority must record the refusal in a report and attach photo or video evidence. The licensing authority makes the decision to terminate the license.

When the duty to keep stock records arises

Under Procedure No. 496, a sole proprietor prepares an inventory list of the remaining goods as of the date the duty to keep stock records arises. The document must state the names of the goods on hand, quantities, units of measure, and value, which the sole proprietor determines independently. To make the list match the actual stock, the entrepreneur must count or weigh the goods.

Based on this list, the sole proprietor makes the first entry in the Stock Records Form: enter row number “1,” the entry date, the list’s name and date, document number “1,” and the total value of the remaining stock in column 7. Leave columns 6, 8, and 9 blank. If there are no goods on hand when the duty arises, do not make an opening stock entry.

For goods subject to special rules

Inventory of petroleum products at filling stations

For filling stations (FSs) whose activities are subject to Instruction No. 281/171/578/155, inventory of petroleum products is mandatory at least once a month. The check covers the actual quantities of petroleum products by grade and type, regardless of ownership, whether they match the records, whether any substandard products are present, and storage conditions. Cash, coupons, sales cards, and statements at the FS are also checked.

The sole proprietor establishes by administrative document working and standing inventory commissions made up of people experienced in such checks. A commission of at least three specialists conducts the inventory. The chief accountant and persons financially liable for the goods are not included in the working commission. The same employee may not be appointed its chair for the same persons financially liable for the goods two times in a row. The standing commission organizes the work, instructs participants, checks that the inventory is carried out correctly, and reviews explanations for shortages.

1. Before the count begins, commission members receive an order in Form No. 20-NP stating the start and end times of the inventory. It is registered in the log in Form No. 21-NP.
2. The person responsible for accounting completes processing documents on receipt and release, enters the transactions in the records, determines the balances as of the inventory date, and provides the commission with a statement in Form No. 22-NP. The persons financially liable for the goods complete the stock books, prepare a movement report by grade and type, and sign a statement in Form No. 25-NP confirming that documents have been submitted for accounting, received petroleum products have been recorded, and released products have been written off.
3. The commission checks that measuring instruments and calibration tables are fit for use, and that measuring instruments, including tanks, have been verified or undergone state metrological certification. It determines the volume and mass of petroleum products by grade and type in tanks and process pipelines at the FS under the Instruction. Measurements are recorded in Log No. 7-NP and Report No. 3-NP; the calculation of quantities in FS pipelines is recorded in Statement No. 35-NP. Packaged petroleum products are weighed.
4. If a tank has a pontoon or floating roof and measurement takes place in the zone where the pontoon or roof begins to float, the product is drained until the cover rests on its supports or topped up until it floats. If this is impossible and there is no calibration table for that zone, the Instruction allows the level to be determined using the accounting records.
5. Releasing petroleum products and other goods during inventory is prohibited. Documents for goods received during the count by a person financially liable for the goods in the presence of the commission must be marked “after inventory,” with the date and the commission chair’s signature.
6. Results are entered in Report No. 25-NP, which is signed by all commission members and the persons financially liable for the goods. The report is prepared in two copies: one is submitted for accounting, and the other is kept by the person financially liable for the goods. When such persons change, three copies are prepared; the second and third copies are kept by the people receiving and handing over the petroleum products, other goods, and cash.
7. A reconciliation statement No. 27-NP is prepared for grades and types with discrepancies. Natural losses and the error in mass measurement are calculated for each tank and owner. For light petroleum products in tanks with a capacity of up to 100 m³, calculating natural losses for each tank is not mandatory; they are calculated by grade and type. Applicable natural losses at an FS are documented in Form No. 29-NP separately for each owner; the head and chief accountant sign it.

For natural losses, apply the current limits under Cabinet of Ministers of Ukraine (CMU) Resolution No. 686. Use them only after an actual shortage has been established. Storage-loss limits do not apply to petroleum products in FS tanks. The limits also do not cover products received and delivered individually in sealed containers, or petroleum products in pressurized tanks.

If, after accounting for applicable natural losses, the discrepancy does not exceed the maximum permissible mass measurement error for the relevant tank, the shortage is not recovered from the person financially liable for the goods, the surplus is not recorded, and the quantity in the records is treated as the actual quantity. Apply the measurement error to the actual mass balance in tanks and process pipelines. For surpluses exceeding the error and shortages exceeding the combined amount of allowable natural losses and the error, the commission obtains written explanations from the persons financially liable for the goods.

For one person financially liable for the goods, a shortage of a petroleum product may be offset against a surplus of the same grade or type in another tank. Offsetting between different grades or types is permitted as an exception for one period, for one person financially liable for the goods, for products with the same name, and in equal quantities. The Instruction also allows offsetting oils and lubricants in similar small containers. Transfers between grades are documented in Report No. 18-NP, and the persons financially liable for the goods provide full explanations for the mix-up. A transfer is permitted, in particular, when one grade is received into a tank containing a remainder of another grade because no empty tank is available, or when several grades are received through one receiving pipeline. The head makes the final decision on offsetting after reviewing the standing commission’s materials.

Shortages within the applicable natural-loss limits are written off. Under clause 13.17 of the Instruction, shortages exceeding allowable losses and measurement error are reimbursed by the persons financially liable for the goods; damages are calculated using the last selling price including VAT. If the persons at fault are not identified, the value of the shortage is charged to the enterprise’s losses. Surpluses exceeding the measurement error are recorded at the price of the last receipt under batch accounting. Surpluses of packaged petroleum products and cash are also recorded.

For mixed or spoiled petroleum products, first take measures to restore their quality. If this is impossible, transfer them to another grade based on a laboratory conclusion and Report No. 18-NP. Persons at fault reimburse losses resulting from the transfer; if they are not identified, the losses are charged to the enterprise’s expenses. Petroleum products collected after equipment cleaning or used for flushing are transferred to another grade or to used products based on a laboratory conclusion; products unsuitable for such a transfer are disposed of. If petroleum products are held under commission or storage contracts, also prepare Reports No. 30-NP separately for each type of contract.

The standing commission records in its minutes the reasons for shortages, identified persons at fault, and the source of reimbursement. The head reviews and approves the report and minutes within three working days. After the minutes are approved, the results are recorded in the accounts for the month in which the inventory was completed. Control and spot checks between inventories are conducted under the head’s order; if significant violations are found, a full recount is conducted on the head’s instructions. Section 13 of the Instruction.

Inventory of controlled substances

Sole proprietors licensed to practice medicine or veterinary medicine who conduct relevant controlled-substance activities under Procedure No. 589 must take a quarterly inventory of the stocks specified in that Procedure and prepare a stock balance statement using the form in Appendix 6. Clause 19 covers narcotic drugs and psychotropic substances from Tables II and III of the list, precursors from List No. 1 of Table IV, products containing more than the maximum permitted amount of controlled substances, and the standard samples specified in that clause. Clause 7 separately requires quarterly inventory counts when handling cannabis for medical purposes, its processed products, cannabis plant substance, and products and medicines made from them. Clause 35 also requires entities handling precursors from List No. 2 of Table IV of the list to take a quarterly inventory and prepare a stock balance statement using the form in Appendix 6. For reporting discrepancies, this clause sets the same three-day deadline and the same recipients. Information about discrepancies in the stock balance statement or its mismatch with the inventory results must be submitted within three calendar days of discovery to the Ukrainian Pharmaceutical Agency (Ukrfarmagentstvo) and the National Police, and, for export-import transactions, also to the Security Service of Ukraine (SBU). Clauses 1, 7, and 19 of Procedure No. 589.

Accounting for precious metals and stones

If your shop handles precious metals and stones, follow your own instructions for their accounting and storage. The Ministry of Finance’s guidance states that entities conducting such transactions must develop and approve their own instructions on the accounting and storage of precious metals and stones. In your instructions, specify who checks the items, how quantities and weight are recorded, and when the count is conducted. Ministry of Finance guidance.

Who must keep mandatory stock records

Article 3 of Law No. 265/95-VR sets out the duties of entities carrying out settlement transactions when selling goods, including accepting cash or payment by electronic payment instruments. Clause 12 of that article requires stock records to be kept and only goods recorded in them to be sold, subject to an exemption for certain single-tax sole proprietors who are not VAT payers. For sole proprietors, Procedure No. 496 sets the rules and form for these records. The table shows which entrepreneur status and product range affect the exemption.

The requirement to keep stock records does not in itself establish an annual inventory requirement. A sole proprietor continually records receipts and the cases of disposal specified in Procedure No. 496, based on documents. Exemption from this Form also does not remove the duty to keep income records and document tax return figures under the Tax Code.

Which documents to keep in the shop

If you are required to keep stock records, complete the Form under Procedure No. 496. Enter the sole proprietor’s surname, first name, and patronymic if applicable; their taxpayer registration number (RNOKPP) or the passport details or ID card number provided for by the Procedure; tax address; and the name and address of the place of sale or storage covered by the records. In a paper Form, put these details on the title page. Then organize the work as follows:

• Enter goods received in the Stock Records Form before they are offered for sale. Attach invoices, purchase reports, customs declarations, receipts, or other primary documents. Check that the documents identify the supplier and recipient by name and RNOKPP or Unified State Register of Enterprises and Organizations of Ukraine (USREOU) code, and state the transaction date, product name, quantity, and value. For people who have officially refused an RNOKPP on religious grounds and have the relevant passport notation, use the passport details or ID card number provided for by the Procedure.
• Keep records for each place of sale. Document transfers between your own shops and warehouses with internal transfer documents.
• Keep the Form and documents at the place of sale until the last unit of goods listed in the relevant document has been disposed of. Each month, group the documents in chronological order for subsequent storage together with the Form. After goods are disposed of, documents must be kept for the periods under clause 44.3 of the Tax Code. The minimum retention period for ordinary documents of a sole proprietor is 1,095 days: for documents supporting tax returns, it runs from the date the returns are filed, or, if the returns are not filed, from the filing deadline; for documents relating to compliance with other legislation supervised by the STS, it runs from the date of the relevant transaction. The retention period is extended by any suspension of the limitation period in the cases under clause 102.3. Separately, subparagraph 69.36 of paragraph 69 of Subsection 10 of Section XX of the Tax Code extends the retention period for documents and information under clause 44.1 for the period during which the limitation period is suspended for documentary audits that are not conducted under subparagraphs 69.2-2, 69.35-1, and 69.35-2. Before destroying documents, the sole proprietor or their accountant must determine the final retention date, taking into account all applicable periods during which limitation periods were suspended. For older documents, also check the quarantine-related suspension under clause 52-2 of Subsection 10 of Section XX and the suspension under subparagraph 69.9 of that subsection, which applied until August 1, 2023. Do not count overlapping periods twice. Also keep documents related to an audit or an appeal of its results until the procedures set out in clause 44.4 are complete.
• Have the Form and documents confirming the stock records and origin of the goods in the shop ready for the supervisory authority at the start of an audit. Train the salesperson to find and provide them to the official. If the original primary documents are not in the shop, you may provide copies and, if needed, present the originals before the audit is completed.
• Allow the electronic Form to be viewed and copied at the official’s request.

In a document recording the destruction, loss, or use of goods for personal needs, state their value at the purchase price confirmed by the stock records. Supplier and recipient details are not required in that document. Record disposals in column 8 of the Form. Do not enter sales through a cash register (RRO/PRRO) in this column a second time.

Correct erroneous entries under clause 6 of Section II of Procedure No. 496. To remove information, mark “cancelled” in the “Notes” column of the relevant row. To correct an entry, mark the previous row “cancelled - corrected” and give the number of the row with the correct data; in the new row, write “corrected” and give the number of the previous row. Keep both entries.

For selling goods not recorded in the stock records and/or failing during an audit to provide documents confirming the stock records at the place of sale, Article 20 of Law No. 265/95-VR provides for a penalty equal to their value at selling prices, but at least UAH 170 (10 non-taxable minimum incomes of citizens at UAH 17 each). The exemption for single-tax sole proprietors who are not VAT payers has the same restrictions on special product ranges as shown in the table.

Separately, clause 14 of Section II of Law No. 265/95-VR provides an exemption from liability for violations committed from October 1, 2023, when selling goods or providing services in temporarily occupied territories, territories of active hostilities, or territories where hostilities are possible. The exemption applies until the relevant date on which occupation, hostilities, or the possibility of hostilities ends, according to the official List of Territories. It does not apply to violations of settlement transaction procedures when selling excisable goods. Before relying on this provision, check the territory’s status and the date of the violation.

How to conduct a voluntary inventory in a shop

The owner sets a schedule based on what needs to be checked. For example, you can count a separate group of high-value goods each month and conduct a full inventory of the product range on your own quarterly schedule. This is an example of an internal procedure. An additional count is advisable after goods are handed over to another employee, after a move, or when discrepancies are found.

1. Before starting, record the date, time, storage locations, list of goods, and names of participants. The owner is responsible for organizing the inventory, employees for counting, and the accountant or sole proprietor for checking documents.
2. Complete entries for receipts, sales, returns, and transfers in the records. Save the balances as of the selected time.
3. Pause movement of the goods being counted. If the shop remains open, separately record every transaction made during the count.
4. Check the goods on shelves, in the back room, in the warehouse, and in the returns area. Separately mark goods belonging to others, customer shipments, and goods in transit.
5. Record the actual quantity for each item. Recount items with shortages or surpluses.
6. Compare discrepancies with invoices, receipts, returns, and transfers. Correct confirmed errors in the documents.
7. Record the remaining discrepancies in a report or statement. Participants sign the results, the owner decides what to do next, and the person responsible for accounting enters changes supported by documents.

For a voluntary inventory in an ordinary shop, a sole proprietor may prepare their own statement. A practical set of fields includes: document title, count date and time, sole proprietor’s details, shop address, product name and SKU, unit of measure, recorded and actual quantities, difference, value, explanation, and participants’ signatures. If the document confirms a loss for mandatory stock records, it must also comply with Procedure No. 496.

Example of discrepancies

Suppose a shop checks two items. All prices and quantities in this example are illustrative.

The employee recounts both items, and the owner checks the sales, receipt, return, and transfer documents. The amounts of UAH 720 and UAH 360 show the value of each discrepancy separately; the reason for each must be established independently.

For a surplus, record the product name, actual and recorded quantities, difference, and explanation in the statement. Find the documents for its receipt and check whether an entry was omitted or the quantity disposed of was overstated. Correct a confirmed error in the Stock Records Form under Procedure No. 496. If the origin of the goods is not documented, establish it and obtain the appropriate documents before the sale. A sole proprietor required to keep stock records must ensure that primary documents and corresponding entries in the Form are available at the place of sale.

What to do about a shortage and VAT

After the count, establish the reason for the shortage. An unrecorded return, an incorrect sales quantity, and an actual loss require different documents. Give the accountant the inventory statement, purchase documents, and explanations for the loss before preparing tax returns. If the reason is natural loss, the accountant must check the applicable limits, the loss calculation, and its connection to taxable transactions. According to STS guidance, when writing off goods that have lost their commercial appearance within natural-loss limits, compensating VAT liabilities are not accrued if their value is included in the value of finished products subject to VAT. Simply labelling the report “natural loss” is not enough.

For a VAT payer, clause 198.5 of the Tax Code requires liabilities to be accrued on goods purchased with VAT that are intended for use, or begin to be used, outside business activity. For goods purchased before July 1, 2015, this requirement applies if the VAT paid on purchase was included in the tax credit. Under clause 189.1, the tax base for goods is their purchase value. The taxpayer prepares a consolidated tax invoice no later than the last day of the relevant reporting period and, under clause 201.10, registers it in the Unified Register of Tax Invoices (URTI) within 20 calendar days after the last calendar day of the month in which it was prepared.

Separately, clause 198.5 provides that a shortage of purchased goods identified during an audit in a report of a selective inventory at the supervisory authority’s request means that the goods were used outside business activity for VAT purposes. An exception applies when the goods were destroyed because of force majeure circumstances confirmed in accordance with the law.

Clause 32-1 of Subsection 2 of Section XX of the Code also excludes the application of clause 198.5 to goods purchased in taxable transactions and destroyed or lost because of force majeure during martial law or a state of emergency. To apply this rule, you need documents confirming the event, the cause of the loss, and the list of goods. If such goods are destroyed or lost because of force majeure during martial law, also take into account subparagraph 69.29 of paragraph 69 of Subsection 10 of Section XX of the Code. VAT included in the tax credit when they were purchased is not included in the calculation of a budget refund. This amount is carried forward to the tax credit for the next reporting period until it is fully used.

Inventory and checking discrepancies in Torgsoft

In Torgsoft, an employee can open an inventory statement from “Warehouse Status” or through the “Document — Inventory Statement” menu. Enter the actual quantity by scanning barcodes or manually. Use the “Product Movement” action to check transactions for a selected item. The owner arranges to stop the movement of goods during the count or to record transactions separately. Torgsoft warehouse management features.

Recount items with discrepancies and check the documents for their movement. A user with the appropriate access can print reports on shortages, surpluses, and inventory results from the statement. Standard reports show retail prices; the shortage and surplus reports can also show cost. Before using these amounts to document losses, check which prices the report contains and compare them with the confirmed purchase price. If the “Restrict inventory statement for inventory by salesperson” setting is enabled, the salesperson cannot see the recorded quantity at the time of the inventory or the wholesale price, and cannot print documents with inventory results. After checking the actual quantities, the responsible user closes the inventory statement. On closing, the software creates a goods receipt note for identified surpluses and a write-off report for shortages, and adjusts warehouse balances to match the count results. For a goods receipt note for surpluses, the software uses the last purchase cost, which includes the purchase price and additional product cost. Check this valuation and the documents confirming the surplus’s origin.

Use the software documents together with purchase documents and the documented inventory results. The sole proprietor or their accountant determines the tax consequences of a loss based on the tax system and the circumstances. The owner must also ensure that the mandatory Stock Records Form is properly maintained if it is required for their activity.

Official sources

• Law of Ukraine “On Accounting and Financial Reporting in Ukraine” No. 996-XIV — Part 1 of Article 2, Article 10.
• Ministry of Finance Order No. 879 approving the Regulation on Inventory of Assets and Liabilities — clauses 2, 7, and 10 of Section I; Section II; clauses 1–3 of Section IV.
• Tax Code of Ukraine No. 2755-VI — subparagraph 20.1.9; clauses 44.1, 44.3, and 44.4; subparagraphs 94.2.8 and 94.6.2 and clause 94.10; clause 102.3; clauses 177.10, 189.1, 198.5, 201.10, and 296.1; clause 5 of Subsection 1, clause 32-1 of Subsection 2, clause 52-2, and subparagraphs 69.2-2, 69.9, 69.29, and 69.36 of paragraph 69 of Subsection 10 of Section XX.
• Law of Ukraine No. 265/95-VR “On the Use of Settlement Transaction Registrars in Trade, Public Catering and Services” — clause 12 of Article 3, Article 20, clause 14 of Section II.
• Ministry of Finance Order No. 496 approving the Procedure for Keeping Stock Records for Individuals Engaged in Business, including Single Tax Payers — clauses 1–2 of Section I; clauses 1–6 and 8–11 of Section II; appendix with the Stock Records Form.
• Law of Ukraine No. 3817-IX on State Regulation of the Production and Circulation of Alcohol, Alcoholic Beverages, Tobacco Products, E-Cigarette Liquids, and Fuel — Part 1 and clause 12 of Part 2 of Article 46.
• Order No. 281/171/578/155 on the Procedure for Receipt, Transportation, Storage, Release, and Accounting of Oil and Petroleum Products — Section 1; clauses 13.2–13.23; document forms specified in these clauses.
• CMU Resolution No. 686 on petroleum product loss limits — clauses 6–10 of Section I.
• CMU Resolution No. 589 on the procedure for activities involving narcotic drugs, psychotropic substances, precursors, including cannabis for medical purposes — clauses 1, 7, 19, and 35 of the Procedure, Appendix 6.
• STS: conducting inventory during a tax authority audit — preparing the request and participation of STS representatives.
• Ministry of Finance: information for entities conducting transactions with precious metals and stones — their own accounting and storage instructions.
• CMU Resolution No. 1209 of September 23, 2026, “Certain Issues Concerning the Functioning of the Ukrainian Pharmaceutical Agency” — clauses 2, 4, and 6 of the Resolution; clause 4 of the approved amendments.
• Resolution of the Cabinet of Ministers of Ukraine dated 5 August 2020 No. 686 “On Approval of the Standards for Losses of Petroleum Products During Their Receipt, Storage, Dispensing, Transshipment and Transportation” — clauses 1–2 and 6–10 of Section I of the approved standards.