Chapter 6 - Overlap Relief & Closing Year Rules

Question 1

Overlap

Answer 1

Overlap profits arise when a trader is taxed twice on the same profit. This will always happen when a traders year end is not 31 March/5 April

Question 2

Overlap Profits

Answer 2

Relieved when either:

1. Trader ceases to trade; or
2. When the trader changes the accounting date closer to 5 April

Question 3

Computing Overlap Profit

Answer 3

Overlap profit/relief is the profit arising the the periods where one basis period overlaps another. The number of months in the overlap period will be the number of months between the chosen accounting date and the following 5 April.

Question 4

Example

Answer 4

If the year end is 30 Sept, there are 6 months between the year end and 5 April in the next year. Therefore, there will be 6 months of overlap profit accrued.

Question 5

Closing Year Rules - Penultimate Year

Answer 5

These rules apply when a trader ceases to trade. Look first at the penultimate tax year (tax year prior to the cessation of the trade). In that period, we tax profits using normal CYB rules

Question 6

Closing Year Rules - Year of Cessation

Answer 6

In the final tax year, we tax the profits arising in the period from the day after the previous basis period to the date of cessation. We then deduct any overlap profit brought forward.