# BIM81080 - Computation of liability: overlap relief - computation

## S205 Income (Trading and Other Income) Act 2005

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.

The profits arising in the overlap period should be computed using the same time-apportionment basis that was used to compute the profits for the two basis periods. The general rule is that time apportionment is by reference to the number of days in the relevant periods, but another acceptable basis may have been used by the taxpayer, see BIM81065.

During the lifetime of a business there may be more than one overlap period. Where this is the case, the overlap profits for each overlap period are added together to give a total amount available to be given as overlap relief.

Guidance on how and when overlap relief is given is at BIM81085.

### Example 1 - one overlap period

A business commences on 1 October 2010. The first accounts are made up for the 12 months to 30 September 2011 and show a profit of £45,000.

The basis periods for the first three tax years are:

Year - -
2010-2011 Year 1 1 October 2010 to 5 April 2011
2011-2012 Year 2 12 months to 30 September 2011
2012-2013 Year 3 12 months to 30 September 2012

The period from 1 October 2010 to 5 April 2011 (187 days) is an `overlap period’.

## Apportionment by days

If the profits for 2010-2011 are computed by an apportionment using the number of days in the relevant periods, the taxable profit for 2010-2011 is £45,000 x 187/365 = £23,054.

Using the same time apportionment basis, the profits for the `overlap period’ of 187 days are £23,054.

## Apportionment by months

If the profits for 2010-2011 are computed by an apportionment using the number of months in the relevant periods, the taxable profit for 2010-2011 is £45,000 x 6/12 = £22,500.

Using the same time apportionment basis, the profits for the ‘overlap period’ of six months are £22,500.

### Example 2 - more than one overlap period

The business in Example 1 continues. In 2015-2016 the accounting date is changed from 30 September to 30 April. The accounts for the 12 months to 30 September 2014 show a profit of £75,000. The relevant conditions for a change of basis period are met (see BIM81045).

The basis periods are:

Year - -
2014-2015 Year 5 12 months to 30 September 2014
2015-2016 Year 6 12 months to 30 April 2015
2016-2017 Year 7 12 months to 30 April 2016

The period from 1 May 2014 to 30 September 2014 (153 days) is an `overlap period’.

If the taxable profit for 2015-2016 is computed using days, it includes the profits for the `overlap period’ of 153 days (£75,000 x 153/365 = £31,438).

Adding together the overlap profits for the first overlap period of 187 days in Example 1 (£23,054) and the second overlap period of 153 days (£31,438), gives total overlap profits of £54,492 over 340 days.