Overlap Relief

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
Scenario:
My client has no overlap profit from earlier years. The basis period is 22 months, because of a change in accounting date. There is no overlap profit, so no overlap relief to use. Does this mean that he is simply assessed on the 22 months for tax purposes?

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    It would be a little easier if you give us the previous accounting date and the new one!

    :wink:
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    OK. The 31st May and now the 31st March.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    Ouch!!

    They will get assessed on 22 months profit in one foul swoop.

    :cry:
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    That's what I thought. Thanks for that. Perhaps I will suggest that we alter it to, say 30th November and then, in a later year, to the 31st March. What do you think?
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    I've just read this and wanted to say that I didn't think you could change the date (like you say) to November and then to March in a future year as you can only change an accounting date once every five years unless it's for 'boda fide commercial reasons' (which you may be able to argue I suppose, depending on the nature of the business).
    Anyway, I pulled out my ATT notes to check that I'd remembered correctly before posting this, and yes, that's right, but I also read something else which I wasn't aware of. I'm going to type this out word for word as I'm not 100% sure that I'm understanding it right:-
    'S62A ICTA 1988 sets out the conditions which must be satisfied if a change of accounting date is to be accepted as valid for tax purposes. if the necessary conditions are not met, a trader's basis periods will continue to be the 12 months to his old accounting date. The conditions are:-
    (i) the first period of account ended on the new date must not be longer than 18 months.
    etc etc...'

    Does this mean that it's not possible to be assessed on 22 months in one go? If that's the case then it looks like you're stuck between the proverbial rock and a hard place!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    Hi Jodie,

    BIM 71115 gives an example of an accounting period longer than 18 months, here:

    http://www.hmrc.gov.uk/manuals/bimmanual/BIM71115.htm


    Kind regards
    Steve

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    Your extract is correct, the next 12 months rule would then give an assessment period of y/e 31st May but then the next period would be to 31st March in the same tax year, hence 22 months all in one go.

    For companies, you can extend once every 5 years only (except for bona fide commercial reasons) but you can shorten the AP as many times as you like. I'm not sure that the legislation for individuals follows but HMRC do accept any change that brings the year end closer to 5th April for the reasons highlighted in the above scenario.

    What is the reason for extending to 31st March?
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    Merely to make life simpler - they would rather be up-to-date with their tax and not nearly a year behind. I might suggest that we just leave things as they are though!
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    Thanks for the link & explanation - I thought I must have misinterpreted something there.
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    If your client is currently drawing accounts to the 31st May, are you sure there is no overlap relief? When did they start to trade? You may be able to claim a 'notional' relief called 'transitional relief'. The relief is available to traders who traded prior to April 97.

    Just a thought.

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    Sorry for jumping in..

    There wouldn't be any overlap relief if there were losses in the first period. That is always a possibility.

    A more common possibility that I have experienced is the accountant forgetting to carry the figure forward from the previous tax return!!


    :roll:
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief
    deanshepherd wrote:
    A more common possibility that I have experienced is the accountant forgetting to carry the figure forward from the previous tax return!!

    That's exactly where I was going :wink:

    I might even have done that once myself :roll:

    :oops:

    Although I did the following year's return and picked it up. :P

    Regards

    Dean
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief
    Dean wrote:
    I might even have done that once myself :roll:


    Surely not!! lol

    That is one of the (many) reasons I ditched Sage for PTP - it gets carried forward automatically.

    Not saying that I've done the same as you in the past... :oops:
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    This chap has been in business for over 20 years and I only took over the accounts last year - who knows what happened when he started up? :?
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    Hi TC

    If he has been trading for 20 years and with a May year end, there MUST be overlap relief from when SA first arrived on our doorsteps....

    Probably worth a call to our beloved friends at HMRC to see if you can get a copy of old tax returns going back to 1997 - dont know though whether they keep them that long. Last year, I was able to get 3 years worth without any problems at all.

    Claudia
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    It is possible to get copies of returns going back to 1996/97 when SA came in as I have 2 clients who are in exactly the same position regarding overlap relief - one ceased trade the other incorporating and I have received their first SA returns. I must forewarn you though, I requested this information at christmas and only received it 2 weeks ago.

    Kind regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Overlap Relief

    Well it is worth a try! Thanks for your help everyone.

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