Hi all, I am looking for some advice with regards to basis periods and the overlapping period.
I have a partnership with an 18 month accounting period (first 18 months of trading).
The accounting date falls within the second tax year (2014/15) so for the second Return i need to include the basis period as 12 months ending on the accounting period (Jan - Dec 14 in this case). However, the first year's return will of course include a basis period to 5 April 2014 (or 31 March for ease) and so the periods overlap by 3 months (1 Jan - 31 March). Uusally this would not cause any problems as the profits taxed in both periods would of course be considered overlap profits to be used later on cessation or if the end date for the peroid of accounting changed. However, in this particular partnership, after the deduction of capital allowances, there are losses for the 18 month period and so instead of an overlap profit what we have is a loss for the overlap period.
Our clients do wish to claim capital allowances to take advantage of AIA available in this period.
Obviously I know I can not claim the losses for Jan - March twice on both returns! (as that would not seem correct) and so can anyone please advise how next to proceed.
Do I just deduct the loss for the 3 month overlap from the loss we will declare on first Return or do I deduct it from the second return?
I have tried to search on HMRC's websites and the internet in general but can find no advice/examples regarding cases where an overlapping loss occurs.
Many thanks for any advice you can provide!.
Replies (16)
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Vague Numbers
Actually putting some numbers in there would help.
You say you have an 18 month period and then tell us it's January to December 2014. Can you clarify what you're saying ?
Losses aren't part of your overlap calculation. Claim the losses as normal, calculate overlap as though profits of the period were zero.
You won't find any examples of an overlap loss. It's not possible.
Normal
Carry back, sideways or forward is what I was thinking of. Losses shouldn't be regarded as a "negative profit" - they're not treated like that.
Fair Enough
The basis period for 2014/15 is then 1 January 2014 to 31 December 2014 - a loss of £12,000, but we have already had £3,000 of that loss (relating to the period 1 January 2014 to 31 March 2014) in 2013/14, so the 2014/15 loss is also £9,000 (losses of £18,000 in total).
Did you notice the "overlap"? ITTOIA 2005, section 206 refers.
I can't bothered look that up but if that's what the legislation calls it, that's fine. I completely agree with your allocation of the loss.
I am, however, quite enthused by my notion that losses could be treated as negative profits. I would love to carry forward my profits indefinitely to use against future losses and lose them completely on cessation of trade.
One period
If you're saying you have one accounting period, 1 July 2013 to 31 Dec 2014, in which your Capital Allowances exceed your pre-CA profits, your overlap relief is zero.
£40000
Your loss relief is £40000 in each fiscal year. Give or take a few bob.
Your overlap relief is £0.
Logic
The logic tells me that half the loss falls in 2012/13 and half in 2013/14.
The legislation tells me that half falls in 2012/13, two thirds falls in 2013/14 but a quarter of that has already been claimed in 2012/13 so can't be claimed again.
It comes to the same thing but that's a really tortuous argument.
Never cross two year ends
I learned early on not to cross two year ends.
But I must look at that one ...... tomorrow, perhaps.
@Portia
Portia - how do you get your 3k-9k-6k split ?
ITTOIA s200(4) appears to agree with logic.
Gracious as always
Even though there are no accounts that end on 30 June 2014, is the accounting date not 30 June? So that section 200(2) applies for 2014/15?
EDIT: [***]! Okay, I agree.
<chuckle>