Business Cessation or Change of Accounting Date? Don’t Forget Overlap Relief
If you are self-employed and your accounting date is not 31 March or 5 April, i.e. in line with the tax year, then you could have overlap profits.
Overlap profits are best illustrated through an example, so let us use a business which commences on 1 July 2016 and prepares its first set of accounts to 30 June 2017.
The first tax return, for the year 2016/2017, will assess the taxable profit from 1 July 2016 to 5 April 2017, and the second tax return (2017/18) will assess the taxable profit from 1 July 2016 to 30 June 2017. The profit, therefore, for the period 1 July 2016 to 5 April 2017 is taxed twice. You will eventually receive relief for this when you cease trading, or if you decide to change your accounting date.
If you have been trading for quite some time overlap relief can become lost or forgotten, so be sure to check whether it applies in your case.
Here at Green & Co we check the overlap position for all our clients, especially in light of changing systems under Making Tax Digital.
If you would like any further information please contact Green & Co on 01633 871122.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.