If you’re self-employed, there are changes coming regarding how your profits are taxed. Because of these alterations, there’s a limited time frame for claiming relief on double-taxed profits.

The Shift in Basis Period

Through the 2022/23 tax year, self-employed professionals, both sole traders and partners, were taxed based on the current year basis. But from 2024/25 onwards, taxation will be on the actual profits for the tax year.

For those whose accounts fall between 31 March and 5 April, this aligns with the tax year. If your accounts have a different end date, you’ll need to apportion profits from two periods to determine the tax year’s profit.

2023/24 is a transitional year. If your accounting date diverges from the tax year, you might end up being taxed on profits for more than a year during this period. It’s essentially the profits of one year since the 2022/23 basis period ended, added to the profits of the rest of 2023/24, minus any overlap relief.

The Basics of Overlap Relief

Overlap profits are essentially profits taxed twice. This could occur during the initial years of your business or when the accounting date is altered. Historically, relief for these overlapping profits was available either when the business ended or when the accounting year changed, resulting in more than 12 months of taxed profits.

The last chance to claim this overlap relief is the 2023/24 tax year. The relief is usually claimed against that year’s transition profits. Don’t forget, this needs to be specified in your 2023/24 tax return by 31 January 2025.

Determining Your Overlap Profits

Identifying these overlap profits might be challenging, especially if your business started several years ago. Thankfully, HMRC is launching an online tool around 11 September 2023 to address overlap relief queries. This will work best if your previous tax returns have been consistent.

Before the tool’s launch, you can request overlap profit details by providing information such as your name, National Insurance number or UTR, business details, commencement date, the span of the most recent accounting period, and any change in accounting dates.

If the relief isn’t claimed in 2023/24, it’s unfortunately forfeited.

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Any questions?

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