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HMRC internal manual

# Computation of liability: basis periods - apportioning losses to basis periods

## S206 Income (Trading and Other Income) Act 2005

Apportioning losses to basis periods follows the same rules as for profits, subject to one overriding condition.

The overriding condition is that a loss can only be relieved once. This prevents duplication of loss relief, whether by aggregation or otherwise.

## Overlap losses used in aggregation

Where there is an overlap between two successive basis periods, it may be necessary to add or apportion the results of two or more accounting periods to compute the profit or loss of the second basis period.

Any loss falling in the first period will already have been used in computing the profit or loss for that period. This loss cannot be used again.

When computing the profit or loss of the second basis period any loss used in the computations for the first period is deemed to be Nil.

### Example

This is a variation of Example 2 at BIM81065.

A trader makes accounts up to 5 April each year until 2012-2013 when a six-month short account is prepared for the period 6 April 2012 to 30 September 2012. Accounts are made up to 30 September in each year after that.

Assume that the relevant conditions are met in respect of changing the accounting date in 2012-2013, see BIM81045.

The accounts show:

 12 months to 5 April 2012 Loss (£40,000) 6 months to 30 September 2012 Profit £10,000

The basis periods are:

 2011-2012 12 months to 5 April 2012 2012-2013 12 months to 30 September 2012

The six-month period from 1 October 2011 to 5 April 2012 is an overlap period.

If the result for the 12 months to 5 April 2012 had been a profit approximately 6/12 of this profit would have been used in the computation for 2012-2013, giving rise to an ‘overlap profit’ for which overlap relief can be given in a later year.

But as the result for the 12 months to 5 April 2012 is a loss, the profit or loss for the overlap period is taken as Nil.

The profit or loss for the relevant basis periods are therefore:

 Tax Year Basis period Profit / (loss) 2011-2012 12 months to 5 April 2012 Loss (£40,000) 2012-2013 12 months to 30 Sept 2012 Nil + £10,000 = £10,000