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HMRC internal manual

Business Income Manual

Computation of liability: overlap relief - how given

S205, S220 Income (Trading and Other Income) Act 2005

Overlap relief is given as a deduction in calculating the profits of the trade for:

  • the tax year in which there is a change of accounting date, if the basis period for that tax year is longer than 12 months, see BIM81090; and/or
  • the tax year in which the trade ceases, see BIM81095.

A deduction for overlap relief only reduces the taxable profit for the year in which the relief is given. There are no circumstances in which the figure of ‘net profit’ for a year (that is the profit after deduction of overlap relief) should be used in any apportionment to calculate the profits of an adjacent year.

Overlap relief is a mandatory deduction. The full amount of the relief available for a particular tax year must be given as a deduction for that tax year. No part of the deduction can be waived.

If giving overlap relief creates or enhances a loss, that loss is available for loss relief in the normal way.