Finance (No. 2) Act 2017

ITTOIA 2005

5 In Chapter 15 of Part 2 (basis periods), after section 204 insert—

“204A Overlap profit and trading allowance under Chapter 1 of Part 6A

(1) This section makes provision about the amount of profit treated as arising in an overlap period which falls within the basis period of a trade for two tax years (“tax year A” and “tax year B”) where relief is given under Chapter 1 of Part 6A (trading allowance) in respect of the trade for at least one of those tax years.

(2) The profit which arises in the overlap period is treated as nil if—

(a) the profits or losses of the trade for tax year A or tax year B (or both) are treated as nil under section 783AF (full relief: trade profits), or

(b) in relation to tax year A or tax year B (or both)—

(i) section 783AI applies in calculating the profits or losses of the trade (partial relief: alternative calculation of trade profits), and

(ii) the deductible amount subtracted at step 2 of section 783AI(2) in relation to the trade is greater than or equal to the non-adjusted overlap profit.

(3) Subsection (6) applies if conditions 1 and 2 are met.

(4) Condition 1 is that, in relation to either tax year A or tax year B—

(a) section 783AI applies in calculating the profits or losses of the trade, and

(b) the deductible amount subtracted at step 2 of section 783AI(2) in relation to the trade is less than the non-adjusted overlap profit.

(5) Condition 2 is that neither section 783AF nor section 783AI applies in relation to the trade—

(a) where condition 1 is met in relation to tax year A, for tax year B, or

(b) where condition 1 is met in relation to tax year B, for tax year A.

(6) The profit which arises in the overlap period is treated as equal to the non-adjusted overlap profit less the deductible amount mentioned in subsection (4)(b).

(7) Subsection (8) applies if, in relation to each of tax year A and tax year B—

(a) section 783AI applies in calculating the profits or losses of the trade, and

(b) the deductible amount subtracted at step 2 of section 783AI(2) in relation to the trade is less than the non-adjusted overlap profit.

(8) The profit which arises in the overlap period is treated as equal to the non-adjusted overlap profit less the higher of the following—

(a) the deductible amount subtracted at step 2 of section 783AI(2) in calculating the profits or losses of the trade for tax year A, and

(b) the deductible amount subtracted at step 2 of section 783AI(2) in calculating the profits or losses of the trade for tax year B.

(9) In this section “non-adjusted overlap profit” means the amount of profit that would arise in the overlap period apart from—

(a) Chapter 1 of Part 6A, and

(b) this section.”