Should there be overlap profits?

Client end date 28th Feb

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I have taken on a sole trader client whose accounts have been prepared up to the end of Feb every year for the last 10 years.  His tax return has always been prepared and submitted from 1st March to 28th (29th) Feb also.  The previous accountants has said that this is ok as it is shortly before the end of the tax year and so overlap relief would apply and therefore the period can stay this way.  My understanding was that overlap relief only applies for dates from 31st March to 4th April?  Would you accept and prepare a tax return based on 1st March to 28th Feb or should I change the dates that are submitted on his return?  Also, how do I change the dates submitted on his return as I would then have to prepare 1st March 2019 to 31st March 2020 which I'm sure the client will not be happy with but I don't think they have a choice really.

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By Wanderer
29th Jun 2020 06:38

Quote:
Should there be overlap profits?
Client end date 28th Feb

I have taken on a sole trader client whose accounts have been prepared up to the end of Feb every year for the last 10 years.  His tax return has always been prepared and submitted from 1st March to 28th (29th) Feb also.  The previous accountants has said that this is ok as it is shortly before the end of the tax year and so overlap relief would apply and therefore the period can stay this way.  My understanding was that overlap relief only applies for dates from 31st March to 4th April?  Would you accept and prepare a tax return based on 1st March to 28th Feb or should I change the dates that are submitted on his return?  Also, how do I change the dates submitted on his return as I would then have to prepare 1st March 2019 to 31st March 2020 which I'm sure the client will not be happy with but I don't think they have a choice really.


Answering your statements / questions:-

1 Your understanding is incorrect.
2 a) Probably yes.
2 b) Probably not unless there was a good reason.
3 a) You just put this on the return AND claim overlap relief AND tick the box but you should do this only IF there's a good reason.
3 b) Yes they do have a choice, again your understanding is incorrect.

Your whole question is indicative that your knowledge in this area is severely lacking. Do some more research into this before you take any action, then work through the calculations using actual figures for this client to get an understanding of how it all works.

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By SXGuy
29th Jun 2020 07:47

It takes 5 minutes to read up on the mechanics and reasons for overlap relief... You would do well to do it.

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Scooby
By gainsborough
29th Jun 2020 08:54

Completely agree with the comments above. Your question shows a lack of understanding of the current year basis rules for taxing existing businesses and opening year rules for new businesses. You need to read up on both of these.

Overlap profits would have been created at the start of the business 10 years ago if the business had made profits back then. The previous accountant will be able to advise you of this amount.

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Replying to gainsborough:
By SteveHa
29th Jun 2020 09:38

Or failing that, HMRC can be quite accommodating. I've actually called the ADL this morning for one of our clients, and whilst they do not have a record of overlap profits, are sending copies of the Returns for the first two years of commencement so I can calculate of applicable.

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Replying to SteveHa:
Scooby
By gainsborough
29th Jun 2020 10:08

True - I've also found HMRC very helpful in this respect in the past.

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Replying to SteveHa:
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By Cheshire
29th Jun 2020 10:50

Agreed

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Replying to SteveHa:
RLI
By lionofludesch
30th Jun 2020 09:41

Quote:

Or failing that, HMRC can be quite accommodating. I've actually called the ADL this morning for one of our clients, and whilst they do not have a record of overlap profits, are sending copies of the Returns for the first two years of commencement so I can calculate of applicable.

They have a record. Don't let them kid you. They know they'll need it one day.

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RLI
By lionofludesch
29th Jun 2020 18:18

You've successfully singled out the period where there are no overlap profits as being the period where there are overlap profits.

A thorough study is required before you go further.

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