Chapter 8 Overlap Relief and Closing year rules

Question 1

8.1 Overlap

Answer 1

Overlap profit arises in the opening years of assessment where the trader is taxed twice on the same profit. Overlap profit will be relieved when either the trader ceases to trade or the trader changes his accounting date closer to 5 April.

Question 2

8.2 Computing Overlap Profit

Answer 2

Overlap profit is the profit arising in the periods when one basis period overlaps with another. The number of months in the overlap period will be the number of months between the chosen accounting period date and the following 5 April, moving forwards in time.

Question 3

8.4 Transitional Overlap Profit

Answer 3

This only applies to traders who started trading before 6 April 1994 (before CYB rules were introduced). Transitional overlap is not real overlap profit (no profits have been double taxed). Transitional overlap relief is notional but it is still deducted from the final year’s assessment, or on a change of accounting date. (the transitional overlap figure will be given to me in the exam, I am not required to calculate it).

Question 4

8.5 The Closing Year Rules

Answer 4

This applies when a trader ceases to trade. We first look at the penultimate tax year