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HM Revenue & Customs

Self Employed short 11 - Overlap Relief help

You can claim overlap relief if you sold or closed down your business, or if you have changed your accounting date this year resulting in a change of basis period, and that basis period is now more than 12 months long.

Overlap profits

You may find that your basis period for 6 April 2020 to 5 April 2021 overlaps with the basis period for 6 April 2019 to 5 April 2020.

Such overlaps can happen in the first three years after a business starts up or in a year in which there is a change of basis period. For example, if your business started on 1 January 2020 and your first accounts are for the 12 months to 31 December 2020, your basis periods are:

The period of overlap is 1 January 2020 to 5 April 2020. So, if the profit for the 12 months to 31 December 2020 is £12,000, the overlap profit is, 94/365 x £12,000 = £3,090.40, over 94 days.

If your basis periods for 6 April 2019 to 5 April 2020 and 6 April 2020 to 5 April 2021 overlap, keep a record of both the overlap profit and the overlap period and any overlap profit you have carried forward where you have not yet claimed overlap relief.

You must take off, as overlap relief, any overlap profits which arose in 6 April 2019 to 5 April 2020 or earlier years when working out your taxable business profits for 6 April 2020 to 5 April 2021 if:

For example, you have overlap profits of £5,000, over five months, from an earlier year. You change your accounting date. Your basis period is 14 months. There are five months of overlap profits available. The relief is in proportion to the number of months by which the basis period exceeds 12 months, that is, two months, and the length of the overlap period, that is, five months.

So, the overlap relief is:

40% x £5,000 = £2,000.

The balance of overlap profit, £3,000, over three months, is carried forward. You can claim this as overlap relief in a later year.