OVERLAP PROFITS

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hello

could somebody explain to me about overlap profits as im stuck on a particular question?

net profit £33,000

paul andrews comenced in business on 1st october 2004. his first set of accounts was made up to 30th september 2005 and accounts will be made up for each 12 month period following.

task 1.2

calculate the trading profits for the first 3 years of assessement.

State the overlap profits and explain how these can be relieved.

I have the osboure book for business taxation but i cant find anything on overlap profits.

Could somebody help me out with this and explain it to me in plain english as its not sinking in and im thinking of quitting, please help.

Many thanks

sebula.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:OVERLAP PROFITS

    This will definitely be in the Osborne book as it is quite a key part of the business tax syllabus. It may be listed under basis periods.

    Annette
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:OVERLAP PROFITS

    01.10.04 - 30.09.05 accounting period

    Profit for the above £33,000

    Pro-rata your taxable profits to fit within the taxable periods: (calculations are in months and irrespective of days)

    06.04.04 - 05.04.05 1st tax period
    01.10.04 - 05.04.05 (£33,000/12)*6 = £16,500

    06.04.05 - 05.04.06 2nd tax period
    01.10.04 - 30.09.05 £33,000

    06.04.06 - 05.04.07 3rd tax period
    01.10.05 - 30.09.06 assuming the same level of profits £33,000 will be accessed again.

    The overlap profits being £16,500 and they can only be relieved when you cease trading or incorporate as a company.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:OVERLAP PROFITS

    Hi,

    Just to follow on from Dean's post - Overlap profits are profits that have, in effect, been taxed "twice" due to the opening year rules (basis periods) and the way they tax profits with year ends that don't co-incide with the tax year.

    Your books should cover these because (as Annette says) it is a topic that is core to the syllabus.

    Regards
    Steve

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