The Overlap Relief 2023-2024
Tax Question
I have a few clients with accounting year ends other than the 31 March or 5 April. As a result of this they will have ‘transitional profits’ and ‘overlap relief’ to consider when dealing with the year 2023/24. I have the following questions:
- What is overlap relief and how do I claim it?
- The overlap has created a loss for 2023/24. How do I deal with this?
- How can I obtain the necessary overlap profit figures, as I have no record of the brought-forward figure from the previous agent?
Tax Answer
1. Overlap relief may have become available on the commencement of the business. This can happen when the first year’s trading accounts are assessed on the ‘Current Year basis (part of the profit is effectively taxed twice, which is what creates the initial overlap relief figure), or from a past change of accounting date.
If the business is old enough, there could be what is known as ‘transitional overlap relief’. This arose following the change of the basis period from the ‘Previous Year’ basis to the ‘Current Year’ basis in 1996/97.
All remaining overlap relief needs to be claimed by 2023/24; otherwise, it will be lost.
2. Where, because of using the overlap relief, a loss is created or increased, there is, in certain cases, an extended carry back available.
A business can apply the terminal loss relief provisions as if they ceased to trade on 5 April 2024. This will allow the loss to be carried back three years on a ‘last in first out basis’. This is optional.
However, it should be noted that only the part of the loss that has arisen because of the overlap relief can be used in this way. Any remaining loss must be used in the normal manner. There are examples of loss relief being used in this way in BIM81300.
3. If you do not know the overlap relief figure, either you or your agent can request the information from HMRC using an online g-form.
The form will ask for certain info such as UTR, the date the trade commenced, or any change of accounting date that has taken place.
One point to note; If you have been unable to obtain the overlap figure from HMRC by the filing date of 31 January 2025, submit the form either without the relief or with what you consider a provisional figure to be. The form can be amended once the actual figure is known.
HMRC has stated that they will not accept ‘not having the overlap figure’ as a reasonable excuse for the late filing of 2024 Tax Returns.
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