Overlap relief

Preparing for the new tax year basis

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From 6 April 2024, business profits will no longer be assessed using the current year basis. Instead, income tax will be charged on the full amount of profits or losses arising in the tax year.

Practitioners should start preparing clients for the change by reviewing the impact it will have on the tax position of affected clients and run through the calculations to check at what point any overlap relief should be triggered to minimise any tax impact. This could be either early trigger point, during the transitional period or perhaps the impact is so minimal that no action may be necessary. It will be important to document any review and decisions made, including client communications evidencing that advice was provided to enable clients to make their decision. Members should also ensure the relevant overlap figures are available in order to correctly calculate the impact.

HMRC has stated the following in its latest agent update that will be useful when requesting overlap information from HMRC.

This summer, HMRC is planning to launch an online form for submitting requests for details about overlap relief. This will provide an easier way to submit requests and make sure that these are dealt with separately from general post.

HMRC will also be publishing additional accompanying guidance on overlap relief and the changes to the rules for the new tax year basis.

Taxpayers with an accounting date other than 31 March or 5 April who are affected by the move to the new tax year basis may need to find out the details of their overlap relief. They’ll need to do this ahead of submitting returns for the 2023 to 2024 transitional year.

Overlap relief information can only be provided if these figures are recorded in HMRC systems, taken from information submitted by taxpayers as part of previous tax returns. If this information has not been submitted in tax returns, HMRC will not be able to provide it.

When looking at a request for overlap relief information, HMRC needs some details about a business to be able to find the correct figures to report back to the taxpayer. If you want to submit a request for information ahead of the launch of the online form, HMRC asks that you provide as much of the following information as possible:

  • customer name
  • national insurance number or unique taxpayer reference (UTR)
  • either name or description of business, or both
  • whether this business is a sole trader or part of a partnership
  • if the business is part of a partnership, the partnership’s UTR
  • date of commencement of the self-employed business, or date of commencement as a partner in a partnership (if not known, then the tax year of commencement)
  • the most recent period end date up to which the business used to report its profit or loss

Ahead of more guidance being published on GOV.UK, information on overlap relief and basis period reform is provided in the Business Income Manual. Information is also available in a GOV.UK news article on basis period reform.