Overlap profit

Overlap profit

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Hello, so before I change a 30 April year-end to 5 April I have requested 1997/98 copy Tax Return from HMRC. Now, if I understand this right then my calc of overlap profits disagrees with the memo of overlaps received from client's former accountant. All help appreciated:

Per 1997/98 SA Return: Net profit £10,734, add-back disallowable expenses of £364 = £11,098.
There were also CA's claimed of £112 giving £10,986 taxable profit.

I would calc overlaps as £11,098 (ignoring CA's) x 340/365 = £10,337.
The memo from the client's former account stated that overlaps b/f were £9,433 for 340 days.
Even including CA's give overlaps of £10,233. No where near the memo of £9,433.

Am I missing another possibility? What figure would claim against this year's profits (once I change YE)?

Thanks

Replies (15)

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By Marion Hayes
27th Apr 2015 13:11

Date of commencement of trade?

Your calculation is of transitional overlap relief.

If trade started 1/5/94 the overlap year is 1995/6 or for 1/5/95 it is 1996/97.

The profit figure to use in this case is after capital allowances.

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By chewmac
27th Apr 2015 15:59

Thanks for help
Same trade and SA record since 1983ish

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By nogammonsinanundoubledgame
27th Apr 2015 16:15

It seems a little unlikely, but ...

.... could they have changed their accounting date twice since 1998?  Once to 31 March and then back to 30 April?

With kind regards

Clint Westwood

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By chewmac
27th Apr 2015 19:49

Client reckons there's been no change in YE but thanks

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By Marion Hayes
27th Apr 2015 21:14

Final checks

I would ask HMRC if the return they have sent you was an amended return as it is possible the memo relates to a different set of figures.

Given the length of time trading I would then have to assume the previous accountant got it wrong.

This is a very common problem - you have the figures HMRC will be checking your calculations against and it is in your client's favour so go with it.

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Replying to johnt27:
By chewmac
27th Apr 2015 23:22

Thanks but is it worth it? Either way wouldn't I end up using my figure? I do appreciate your comment

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By Marion Hayes
28th Apr 2015 17:13

@chewmac

I am not sure if a return is amended by letter as opposed to re-filing whether the copy they send you is the original or the amended.

 

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Replying to Justin Bryant:
By chewmac
29th Apr 2015 07:42

Well...
you've sown a seed of doubt now. Hmmmm. If only HMRC were easier to deal with! Thanks though

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By Marion Hayes
29th Apr 2015 08:11

Contact difficulties

are annoying - the alternative is to go with your figures but explain to client that as you have based it on information provided by HMRC you assume it is accurate but that the technical review may create a small difference if you were given inaccurate figures to work with

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By chewmac
29th Apr 2015 16:55

@Marion - I took the advice

Thanks again Marion - the doubts got the better of me. I called HMRC Agents SA line who were able to view the SA302 from 97/98. He confirmed the date the ITR was filed and that it's never been revised. Which was very helpful (I was on the phone less than 10 mins) - but I have to wonder: If he had that info so quickly why was I directed to HMRC Data Protection Unit to acquire a copy of the Tax Return in the first place?! This could have been done over the phone when I originally called.

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By Marion Hayes
30th Apr 2015 17:00

Good result

I am glad you found someone who knew what you were talking about.

I am sure they could have helped before too!

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By chewmac
03rd May 2015 14:55

@Marion - any advice on these dates?

Hello Marion, I wonder if I can direct a question your way?

I'm working through establishing the Overlap profits for another client for whom previous accountant hasn't given me a memo.

Current year-end 30 Sep. I'd like to change to 31 Mar.

I requested 1997/98 SA Return and discovered that he began trading 1 Sep 1996, with first AP ending 31 Aug 1997. Two questions:

1. Am I looking at the right year from which to calc overlaps?

2. Any ideas why YE might have been extended one month? Am I to track down when and calc another month's overlap?

Any pointers appreciated.

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By Marion Hayes
03rd May 2015 16:29

Current year basis throughout

Commencement 1/9/96

First year is rightly y.e. 31/8/97

1996/97 = y.e.31/8/97 x 217/365 of the profit after capital allowances

1997/98= y.e. 31/8/97

Overlap is 217 days in the amount of the portion taxed in both years.

If you now have 30/9 there must have been a prior change of accounting date so another phone call to HMRC will be needed. Potentially there is another 30 days.

When they tell you when the date first changed just check that that return was submitted on time and then ask for a copy. If it was late then ask for a copy of the next year too.

 

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By chewmac
03rd May 2015 16:57

Thank you Marion, you've been very helpful.

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