BIM81270 - Transitional rules: computing profits for the 2023-24 basis period

How the profits for the transition year, 2023-24, are computed will depend on whether the basis period has a transition part or not. The two calculations are set out in this guidance.

Deduction of overlap relief

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.
In computing the profits for the 2023-24 transition year, the trader must deduct overlap relief under certain circumstances. Overlap relief that can be deducted is:

• the amount that would be available were the trader to permanently cease to carry on their trade on 5 April 2024.
• the amount that was available on a change of accounting date in an earlier tax year (that has not been previously deducted already). This is explained below.

Unused overlap profits arising from earlier change of accounting date

Under the normal basis period rules (pre 2023-24), overlap relief must be claimed against the profits of a tax year in which a change of accounting date occurs if the basis period for that tax year exceeds 12 months. Despite being required to, some individuals may have failed to deduct this overlap relief. In such cases, where there has been a change of accounting date in an earlier year and the individual failed to deduct overlap relief, the amount that should have been deducted is available for relief in computing the profits for the 2023-24 transition year. This includes any transitional overlap relief arising on the change from the previous year basis period rules to the current year basis period rules (see BIM81110 for further guidance on this).

Under the new tax year basis rules, overlap relief cannot be deducted and all unused overlap relief will be lost at the end of the 2023-24 tax year.

General guidance on computing overlap relief is at BIM81080.