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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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UK residents with foreign income or gains: income tax: Trades, professions set up 1996-97 onwards

Where a trade, profession or vocation is set up and commenced on or after 6 April 1994, additional tax credit relief may have been allowed on the occasion of overlapping basis periods, either on commencement or a change of accounting date (see INTM165060, second sub-paragraph).

The additional tax credit relief granted is recovered when, in a subsequent year, `overlap relief’ is allowed. Overlap relief can arise in two situations, first when the business ceases, when the basis period is given by ITTOIA 2005/S202, and second on a change of accounting date to a date later in the tax year, when the basis period is given by ITTOIA 2005/S216(3).

The relief is recovered

  • by restricting the tax credit relief given in the year in which the overlap relief is given, and, where necessary,
  • by way of a charge to tax.

The method by which the additional tax credit relief is recovered is determined by comparing

  1. the amount of the additional tax credit relief originally allowed in respect of the overlap profits, and
  2. the amount of the foreign tax credit (in respect of income from the same foreign source) which would have been allowable for the year in which the corresponding overlap relief is due if in fact there had been no overlap relief to take into account (TIOPA10/S24).

Where (a) exceeds (b), no tax credit relief will be allowed for the year in which overlap relief is due and any excess of (a) over (b) is recovered by way of a charge to tax (TIOPA10/S24(4)).

Where (b) exceeds (a), only the excess will be available for tax credit relief in the year in which overlap relief is given, subject to the usual rules regarding limitation of relief (TIOPA10/S24(5)).