Income Tax (Trading and Other Income) Act 2005

Overlap profits and losses U.K.

204 Meaning of “overlap period” and “overlap profit” U.K.

In this Chapter—

• “overlap period” means a period which falls within two basis periods, and

• “overlap profit” means profit which arises in an overlap period.

[F1 204A Overlap profit and trading allowance under Chapter 1 of Part 6A U.K.

(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.]

Textual Amendments

F1 S. 204A inserted (16.11.2017) (with effect in accordance with Sch. 3 para. 13 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 3 para. 5

205 Deduction for overlap profit in final tax year U.K.

(1) If a person permanently ceases to carry on a trade in a tax year, a deduction is allowed for overlap profit in calculating the profits of the trade of the tax year.

(2) The amount of the deduction is calculated as follows.

Step 1

Add together the overlap profits arising in all overlap periods.

Step 2

Subtract from that any deductions for overlap profit made under section 220 (deduction for overlap profit on change of accounting date).

The balance is the amount of the deduction allowed under this section.

206 Restriction on bringing losses into account twice U.K.

If a loss arises in, or is apportioned under section 203 to, two overlapping basis periods, the amount of the loss—

(a) is brought into account in calculating the profits of the first basis period, and

(b) is not brought into account in calculating the profits of the second basis period.

207 Treatment of business start-up payments received in an overlap period U.K.

(1) This section applies if—

(a) a person carrying on a trade receives a business start-up payment (see subsection (3)) in a period which falls within two basis periods, and

(b) the payment is not a lump sum payment.

(2) The payment—

(a) is brought into account in calculating the profits of the trade of the first basis period, and

(b) is not brought into account in calculating the profits of the trade of the second basis period.

(3) A “business start-up payment” means a payment under a Business Start-Up scheme which is of the kind originally known as enterprise allowance and is made—

(a) in England and Wales, by a training and enterprise council pursuant to arrangements under section 2(2)(d) of the Employment and Training Act 1973 (c. 50),

(b) in Scotland, by a local enterprise company under section 2(4)(c) of the Enterprise and New Towns (Scotland) Act 1990 (c. 35) in relation to arrangements under section 2(3) of that Act, or

(c) in Northern Ireland, by or on behalf of the Department for Employment and Learning under section 1(1A)(d) of the Employment and Training Act (Northern Ireland) 1950 (c. 29 (N.I.)).