If you have unrelieved overlap profits, you will not be able to claim relief for those profits after 2023/24. Overlap profits are profits that have been assessed twice – either in the early years of a business or on a change of accounting date.
From 2024/25, unincorporated businesses will be taxed on the profits for the tax year regardless of the date to which they prepare their accounts. Where the accounting period does not correspond with the tax year, the profits from two accounting periods will be apportioned to arrive at the profits for the tax year. As a result, profits are only ever taxed once, removing the problem of overlap profits.
The current year basis (under which the profits taxed for the tax year are those for the accounting period ending in that tax year) came to an end in 2022/23. Under the current year basis, relief for overlap profits was given either on a change of accounting date which resulted in more than 12 months’ profits being taxed in a tax year, or on cessation.
The 2023/24 tax year is a transitional year moving from the current year basis to the tax year basis. The profits for that year are those from the end of the accounting date in 2022/23 to the accounting date ending in 2023/24 (the standard part) plus those from the end of that period to 5 April 2024 (the transition part). Any unrelieved overlap profits can be deducted from the transition profits.
If relief for remaining overlap profits is not claimed for 2023/24, it will be lost.
Establishing overlap profits
On 11 September 2023, HMRC launched an online service to help unincorporated businesses establish their overlap profits available for relief. The service is available on the Gov.uk website at www.gov.uk/guidance/get-your-overlap-relief-figure.
You may be able to make a claim for overlap relief for 2023/24 if:
- your accounting date does not align with the tax year (i.e., it is not a date between 31 March and 5 April inclusive);
- you changed your accounting date to align with the tax year but did not claim relief for overlap profits on the change of accounting date; or
- you changed your accounting date in 2023/24to align with the tax year.
You may also be able to claim overlap relief in 2023/24 if you stopped trading in that year.
You may also like to read: Tax implications of termination payments
It may be that you are able to find your overlap profits from your previous tax returns, entered as ‘Overlap Profit Carried Forward’ on either the self-employment pages (SA103) or the partnership pages (SA104).
If you cannot find your overlap relief figure, you can use the online service to establish your overlap profits – but only if you provided this information in a previous return.
Using the service
To use the service, you will need to sign in with your Government Gateway user ID and password for Self Assessment. Your agent can also use the service on your behalf.
You will need to provide the following information, so it is advisable to ensure that you have it to hand before you start:
- your name;
- the name of your business or a description of it;
- your business address;
- your unique taxpayer reference;
- details of whether your business is a sole trader or a partnership;
- the date that your business started or you became a partner in the partnership (you can provide the starting tax year if you are unsure of the exact date);
- the most recent period of account or basis period used by your business; and
- if you have changed your accounting date, the year or years of the change.
You will also be asked for your contact details and whether you would like a response by email or by letter.
After providing your information you will receive a confirmation email or letter containing your submission reference. HMRC will generally aim to provide details of your overlap relief within three weeks. However, for complex cases, it may take longer.