Overlap Relief Explained

Overlap relief prevents you from paying tax twice on the same business profits when you start trading or change your accounting date. It's a record of profits you've been taxed on more than once that you can deduct when you stop trading, change your accounting date, or following recent rule changes affecting how self-employed people and partnerships report their income.

What is overlap relief?

When you're self-employed or in a partnership, you pay tax on your business profits for each tax year (6 April to 5 April). However, your business accounting period may end on a different date – for example, 31 December or 30 June.

Overlap relief is the mechanism that compensates you when you're taxed on the same profits twice. This double taxation can happen:

• When you first start trading
• When you change your accounting year end date

The amount of profits taxed twice becomes your "overlap profit". This figure is tracked and can be claimed back later as "overlap relief" to reduce your tax bill.

How overlap profits arise when you start trading

In your first few years of trading, the way tax is calculated can mean some of your profits are counted in more than one tax year.

If your business started on or after 6 April 1994, overlap profits typically arise in your first three years of trading. The exact amount depends on your accounting period dates and your profits in those early periods.

If your business started before 6 April 1994, the calculation is based on your accounting periods for the 1996 to 1997 and 1997 to 1998 tax years.

How overlap profits arise when you change your accounting date

Overlap profits can also arise if you change your accounting year end date (your accounting date) – particularly if you change to a date earlier in the tax year.

If you changed your accounting date before the 2023 to 2024 tax year, this may have created additional overlap profits or reduced existing ones.

When you can claim overlap relief

You can claim overlap relief to reduce your taxable profits in these situations:

When you stop trading: You can claim all your overlap relief in your final tax return when you cease your business.

When you change your accounting date: You may be able to claim some or all of your overlap relief if you change your accounting period end date.

Following Basis Period Reform: You can use overlap relief in the 2023 to 2024 tax year if your accounting end date:

• Does not align with the tax year (accounting dates between 31 March and 5 April count as aligned)
• Has been changed to align to the tax year, but you did not use any overlap relief that was due
• Was changed during the 2023 to 2024 tax year and now aligns with the tax year

How to track your overlap relief figure

Your overlap relief figure should already be recorded on your previous Self Assessment tax returns as "overlap profit carried forward" if your return included trading income on:

• Self-employment (full) (SA103F) form
• Partnership (full) (SA104F) form
• Partnership (short) (SA104S) form

Check your previous returns to find this figure. You can also work out your overlap relief figure using historic profit figures from your earlier returns.

Working out your overlap relief figure

HMRC provides an overlap relief calculator to help you work out the amount to include in your Self Assessment tax return.

To use the calculator, you'll need:

• The date your business started, or the date you joined a partnership

If your business started before 6 April 1994, you'll need:

• Your accounting period for the 1996 to 1997 tax year
• For 1997 to 1998: your accounting period, profit or loss, and capital allowances and balancing charges (your share if in a partnership)

If your business started on or after 6 April 1994, you'll need:

• Your accounting periods for the first three years
• Your profits or losses in each period (your share if in a partnership)

If you changed your accounting date, you'll need details of those changes. The calculator cannot be used if you have made more than two changes.

Use reasonable estimates if you do not have exact figures in your business records.

If you cannot find your overlap relief figure

If you cannot work out your overlap relief figure and it's not shown on your previous tax returns, HMRC may be able to help.

The HMRC service can provide an overlap relief figure if this information was included in a previous tax return. If not, they may be able to provide historic profit figures so you can calculate it yourself.

To request help, you'll need to provide:

• Your name and business name or description
• Your business address
• Your Unique Taxpayer Reference (UTR)
• The partnership's UTR, if you're in a partnership
• The date or tax year you started your business or joined a partnership
• Your most recent period of account or basis period
• The year or years the accounting period changed (if applicable)

HMRC will review your request and contact you within three weeks (longer for complex cases).

Important: You must file your Self Assessment tax return by the deadline. If you're waiting for HMRC to provide information, estimate your overlap relief and provide provisional figures on your return. You can change your return when you know the correct figures.

This service is not available for trusts, estates, or non-resident companies with trading income – contact HMRC directly in those cases.

Including overlap relief in your tax return

Once you know your overlap relief figure, you include it in the appropriate box on your Self Assessment tax return to reduce your taxable profits for the year you're claiming it.

Section 12 of the HMRC helpsheet "How to calculate your taxable profits (HS222)" explains exactly how to include overlap relief in your return.

HMRC will send you a confirmation letter or email with a submission reference when you request help with your overlap relief figure. Keep this safe as it will help when completing your tax return.

Sources

• Get your overlap relief figure
• Work out your overlap relief figure
• Overlap relief (Self Assessment helpsheet HS260)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.