Overlap period creates a loss not profit

Overlap period creates a loss not profit

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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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RLI
By lionofludesch
16th Feb 2015 14:53

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.

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Replying to Moo:
Portia profile image
By Portia Nina Levin
25th Apr 2015 17:37

(No subject)

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RLI
By lionofludesch
16th Feb 2015 14:56

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.

 

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Portia profile image
By Portia Nina Levin
25th Apr 2015 17:38

(No subject)

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Replying to AndrewGarvey:
RLI
By lionofludesch
16th Feb 2015 15:28

Fair Enough

Portia Nina Levin wrote:

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.

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RLI
By lionofludesch
16th Feb 2015 15:20

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.

 

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By mojojojo
16th Feb 2015 16:18

Thank you both for your comments.  Yes the accounting period is indeed July 2013 - December 2014.

The losses are approx £80k for those 18 months and I totally agree that the losses can not be claimed twice.

First year is of course 1 July 2013 - 31 March 2013 so 9 months would apportion to -40K.

Second year is 1 Jan - 31 Dec 2014 so 12 months would be -£53,333.  Obviously, I know I cant claim all of that as those figures are higher than the actual loss! so I was just wondering if I am meant to claim the "overlap" bit in 2013/14 year (so £-40k 13/14 and £-40k 14/15) or should I be claiming the 3 month "overlap" part during 2014/15  (so £26,667 13/14 and £-53,333 14/15) 

I.e Is it okay to claim it as early as possible or should it technically be claimed on the later return?  Each partner is likely to make a claim for the loss relief on their personal returns so I am really just worried about claiming the higher loss during 13/14 and not 14/15 in case that is techincally incorrect.

I hope that makes sense! 

You both seem to think the loss should be claimed at the earlier point in time....

Thanks again.

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Portia profile image
By Portia Nina Levin
25th Apr 2015 17:38

(No subject)

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RLI
By lionofludesch
16th Feb 2015 17:12

£40000

Your loss relief is £40000 in each fiscal year. Give or take a few bob.

Your overlap relief is £0.

  

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RLI
By lionofludesch
16th Feb 2015 17:40

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.

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Portia profile image
By Portia Nina Levin
25th Apr 2015 17:39

(No subject)

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RLI
By lionofludesch
16th Feb 2015 20:15

Never cross two year ends

I learned early on not to cross two year ends.

But I must look at that one ...... tomorrow, perhaps.

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RLI
By lionofludesch
17th Feb 2015 11:37

@Portia

Portia - how do you get your 3k-9k-6k split ?

ITTOIA s200(4) appears to agree with logic.

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Portia profile image
By Portia Nina Levin
25th Apr 2015 17:39

(No subject)

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Replying to DouglasN:
RLI
By lionofludesch
17th Feb 2015 14:12

Gracious as always

Portia Nina Levin wrote:

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>

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By mojojojo
17th Feb 2015 12:20

Thank you for your reference

Thank you for your reference to ITTOIA 2005, section 206  

I should have looked at it yesterday but looked this morning and can see that it answers my question perfectly re which period the loss arising in two overlapping basic periods should be claimed in.

Thanks again for all your comments! :-)

 

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