Commentary

B8.107 Overlap profits

Business tax
Business tax | Commentary

B8.107 Overlap profits

Business tax | Commentary

B8.107 Overlap profits

Due to the method by which profits in a basis period are allocated to a particular tax year there may be instances where the same profits are taxed more than once.

These profits are known as 'overlap profits' as they arise in an 'overlap period' (ie, a period which falls within two basis periods)1.

Calculation of overlap profits

Overlap profits will usually arise in the early years of a trade or because of a change of accounting date.

Example 1

A commences trading on 1 September 2019 and makes up accounts for the 12 months ended on 31 August 2020, and annually thereafter to 31 August.

The profits as adjusted for tax purposes are as follows:

£
Year ended 31 August 202012,000
Year ended 31 August 202120,000

The basis periods, assessable profits and overlap periods are:

2019/20: The year of commencement. The basis period is 1 September 2019 to 5 April 2020. The assessable profits are £7,134, ie 217/365ths × £12,000.

2019/20: The second year. The basis period is the 12 months to 31 August 2020. The assessable profits are £12,000. The overlap period is 1 September 2019 to 5 April 2020 (217 days) and the overlap profits are £7,134.

The overlap profits may be relieved on a subsequent change of accounting date or on cessation of trade.

Example 2

B has been trading for many years, preparing accounts to 30 September, until 2016, when the accounting date is changed to 30 April 2017 and annually thereafter. The requirements

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