Overlap Losses

Question 1

What happens if a trader incurs a loss in their opening years? re: overlap

Answer 1

Under CYB opening year rules overlap profits arise. But if a trader incurs a loss instead. The CYB rules are applied to the loss figure.

However, HMRC does not permit double-counting of losses.

Question 2

As HMRC does not permit the double-counting of losses, what happens when the basis periods overlap regarding a loss? (i.e. when is the loss recognised)

Answer 2

A loss must be recognised only in the earlier of the two periods.

e.g. if a loss of £11,000 occurred in an AP ending 30 June 2019 you need to work out (based on opening year rules) how much of that loss relates to:

Year 1 18/19; and
Year 2 19/20

Question 3

Overlap Losses illustration

Answer 3

Illustration:
A trade commenced on 1 January 2019 and a loss arises in the year ended 31 December 2019 of £24,000.
Show the assessments for the first two basis periods.

2018/2019

1 Jan 2019 - 5 April 2019
Loss: 3/12 x (£24,000)
(6,000)

Looking at Year 2 (2019/20), the basis period will be 12 months to 31 December 2019 which shows a loss of £24,000. However, as we recognised £6,000 of that loss in the previous tax year, we must reduce the loss available in the later year.

2019/20

Y/e 31 December 2019
Loss (£24,000)
Loss already recognised in 18/19 £6,000
Loss of 2019/20 = (£18,000)

Question 4

Is there such a thing as an “overlap loss”?

Answer 4

There is no such thing as an “overlap loss”.