As we move towards the 2023/24 tax year, it’s vital for unincorporated businesses to understand the concept of overlap relief and act promptly. Overlap profits, which are profits taxed twice under the current year basis, will no longer be eligible for relief after the 2023/24 tax year due to changes in tax legislation.

From the 2024/25 tax year, businesses will be taxed on profits made in the actual tax year, irrespective of their accounting date. This marks a departure from the current year basis, which will cease after the 2022/23 tax year. During this basis, overlap relief was applicable either upon changing accounting dates that led to taxing more than 12 months of profits in a single tax year or upon the cessation of business.

The transitional year of 2023/24 is the bridge between the current year and tax year bases, where unrelieved overlap profits can be offset against the profits of the transition period. If these overlap profits aren’t claimed during this year, they will be permanently forfeited.

To facilitate the process, HMRC launched an online service on 11 September 2023, enabling businesses to determine their available overlap profits. This service is particularly useful if your accounting date is outside the 31 March to 5 April range, if you’ve changed your accounting date without claiming overlap relief previously, or if you’ve ceased trading during 2023/24.

Businesses can typically locate their overlap profits listed as ‘Overlap Profit Carried Forward’ on their tax returns. If this information is elusive, the online service can help, provided you have submitted this data in a past return.

To access the service, you’ll need to log in with your Government Gateway credentials. The service requires specific details about your business, so it’s prudent to gather all necessary information beforehand.

After submitting your details, HMRC will acknowledge receipt and aim to provide your overlap relief figure within three weeks, although more complex cases may take longer. It’s an important step to ensure you don’t miss out on this relief before the window closes.

 

 

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