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Overlap Relief

Overlap Relief

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Which year was overlap relief was introduced?

I have 1996&97 in my head, but not sure.

I have taken on a new client with a year end of 31st January, which is now ceasing 31st March, due to incorporation, so I will have 14 months to go on to Tax Return.
I have received last years copy Tax Returns from previous account, but no overlap relief shown (and client has been trading for over 20 years, with the 31st January year end).

I have asked the Revenue for the amount, but they have replied "none shown on Tax Return" (most helpful.....), so I am going to work out the relief myself, but can not remember which two years profit you use in your calculation.

I think it is 31/01/96 & 31/01/97 - does anyone know if this is correct?

Many thanks
Helen
Helen Dobbs

Replies (7)

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By stephenkendrew
06th Jun 2007 15:59

Sharon
Yes, overlap relief can create (or increase) a loss.

Furthermore, if trading has ceased, it can be carried back three years under the terminal loss relief provisions.

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By stephenkendrew
04th Jun 2007 16:14

nearly there...
It was indeed 1996/97 when self-assessment started.

As I recall, 1995/96 was the last pre-SA year (assessed on PY basis), 1996/97 was the year we had to average the profit for 2 years and 1997/98 was the first full year under SA (assessed on CY basis).

The overlap relief is, therefore, the profits (before capital allowances) from the end of the 1996/97 basis period to 5 April 1997 - in your case from 1 February 1997 to 5 April 1997.

So, effectively, you need to look at the 1997/98 year (i.e. y/e 31 January 1998) and multiply the taxable profit (before CA) by 64/365 to give you the overlap relief.

Ask HMRC what the profit before CA was in 1997/98 - they've always answered me whether shown on the tax return or not.

This does, of course, assume that the business was already trading before SA was introduced. If not, the overlap relief is the amount of profits taxed in both 1996/97 and 1997/98.

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By acountancy.lindsayandco.n
04th Jun 2007 16:51

overlap relief
I agree with Stephen's answer. Just acertain the taxable profit for 1997/98 before capital allowances and take the appropriate fraction. I have not been able to find out from HMRC website how to compute this as it only seems now to be concerned with calculating overlap relief on the alternative basis ie when the same period's profits are brought into account more than once. With the passing of time I would have thought that for quite a few years it is going to become more widespread as people approach retirement, and accountants need to be aware of it.

The idea for taking the appropriate fraction of the 1997/98 profits was to give a rough justice method to compensate those businesses who were originally subjected to the old PY basis and it was considered that they would lose out on cessation. I have actually never agreed with the logic but obviously make use of it when relevant. You use the 1997/98 relief either on cessation or change of business. I have used it two or three times, including for myself when I changed accounting dates. .

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By sharon_phillips
06th Jun 2007 15:01

Overlap relief creates a loss
I assume that if there is a taxable profit before overlap relief, but overlap relief creates a loss, that the resultant loss can be offset against other income during the year?

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Ivor Windybottom
By Ivor Windybottom
03rd Jul 2020 10:08

There are two types of overlap relief:
(a) the "normal" overlap we are all used to dealing with reflecting the double taxation of the opening period where the first accounts are used for more than one tax year (or where a change of period results in profits taxed twice) and
(b) transitional overlap relief for the profits in 1996/97 that were taxed twice as a result of the change of basis - as outlined by stephenkendrew

So you could have two amounts to consider in the final period.

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Replying to Ivor Windybottom:
Quack
By Constantly Confused
03rd Jul 2020 14:05

Ivor Windybottom wrote:

There are two types of overlap relief:
(a) the "normal" overlap we are all used to dealing with reflecting the double taxation of the opening period where the first accounts are used for more than one tax year (or where a change of period results in profits taxed twice) and
(b) transitional overlap relief for the profits in 1996/97 that were taxed twice as a result of the change of basis - as outlined by stephenkendrew

So you could have two amounts to consider in the final period.

Hop in your timemachine and tell the OP that 13 years ago when they posted the question...

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Replying to Constantly Confused:
Ivor Windybottom
By Ivor Windybottom
08th Jul 2020 09:05

OMG - I don't know how the question came up in the recent thread - I didn't see the age of it.

Oh well, better very late than never!

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