What are overlap profits in self-assessment?
Answered 11 March 2026
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Overlap Profits in Self-Assessment
What the law says
The relevant statutory provisions are found in ITTOIA 2005, ss. 204–206 and s. 220 (and previously in FA 1994, s. 205). Although the legislative text in the retrieved sources is repealed/omitted, the operative provisions are well-described in HMRC guidance below.
HMRC guidance / practice
Definition
Overlap profits are the profits of a trade, profession or vocation that are taxed twice because they fall within the basis periods for two successive tax years. The period during which this double-counting occurs is called an "overlap period".
When do they arise?
Overlap profits arise in two situations:
- On commencement — in years 2 or 3 of trading, while the basis periods and accounting periods are being brought into alignment; or
- On a change of accounting date — during the period of realignment following such a change.
Where a trader uses 5 April as their accounting date throughout the entire life of the business, there are no overlapping basis periods and no overlap profits arise. Similarly, special rules can apply where accounts are prepared to a date shortly before 5 April, which may mean no overlap profits arise.
Practical example
A trader commencing on 1 January 2018 with a 31 December accounting date will have a basis period of 1 January–5 April 2018 for 2017/18, and 1 January–31 December 2018 for 2018/19. The period 1 January–5 April 2018 falls in both basis periods. The profits for that overlap period (£2,000 in the example) are the overlap profits.
Overlap relief
To ensure that total profits charged to income tax exactly equal total profits made during the life of the business, "overlap relief" is given. Overlap relief is a deduction from trading profits and is given:
- In the year the trade ceases; and/or
- In an earlier year in which a change of accounting date occurs, if the basis period for that year is longer than 12 months.
Abolition from 2024-25
From 2024-25 onwards, profits are assessed on the tax year basis (profits earned in the tax year itself), and overlap relief is abolished. The 2023-24 tax year was a transitional year in which all remaining overlap profits had to be deducted — any unused overlap relief was lost at the end of 2023-24.
Citation sources
The amount available to be given as “overlap relief” is the amount of “overlap profits” which arise in an “overlap period”. An overlap period is a period which falls within the basis periods for two successive tax years. In computing the profits for the 2023-24 transition year, the trader must deduct overlap relief under certain circumstances. Overlap relief that can be deducted is: the amount that would be available were the trader to permanently cease to carry on their trade on 5 April 2024. t
Where 5 April is used as the annual accounting date throughout the entire life of a business, there will be no overlaps between basis periods. In such cases the total profits charged to Income Tax will automatically equal the total profits made during the life of the business. In any other case there will be one or more years in which the basis periods for two successive tax years overlap. These overlaps may occur: In years 2 or 3 during the period in which the basis periods and accounting perio
Where a trader prepares accounts to a date shortly before the end of the tax year, the commencement rules normally create an overlap period from the accounting date to 5 April. However, in certain circumstances, special rules apply which modify the basis period for the year. The effect of these rules is that profits do not need to be apportioned and no overlap profits arise. If the circumstances are relevant, the special rules apply automatically unless the trader elects otherwise. An election m
From 2024-25 profits are assessed on the basis of profits earned in the tax year and overlap relief is abolished. This guidance therefore only applies up to 2023-24. Where any new source of foreign income arose on or before 5 April 1994, application of the old commencement provisions means that income from the source will, in the early years, be assessed to UK Income Tax more than once. This is so for any source of income chargeable under Case V, when ICTA88/S66 applied, and also where the incom
Under the normal basis period rules (pre 2023-24), overlap relief must be claimed against the profits of a tax year in which a change of accounting date occurs if the basis period for that tax year exceeds 12 months. Despite being required to, some individuals may have failed to deduct this overlap relief. In such cases, where there has been a change of accounting date in an earlier year and the individual failed to deduct overlap relief, the amount that should have been deducted is available fo
Kavita commences a new trade as a photographer on 1 January 2018, and makes up her accounts for 12 months to 31 December 2018 showing turnover of £12,000 and expenses of £600. The basis periods (BP) in this case are 1 January 2018 to 5 April 2018 (for 2017/18 tax year), and 1 January 2018 to 31 December 2018 (for 2018/19 tax year). Partial relief applies for both 2017/18 (BP 1 January 2018 to 5 April 2018) and 2018/19 (BP 1 January 2018 to 31 December 2018). Profits assessable for 2017/18 would