Where 5 April is used as the annual accounting date throughout
the entire life of a business, there will be no overlaps between
basis periods. In such cases the total profits assessed to income
tax will automatically equal the total profits made during the life
of the business.
In any other case there will be one or more years in which the basis periods for two successive tax years overlap. These overlaps may occur:
To ensure that the total profits assessed to income tax exactly
equal the total profits made during the life of the business,
“overlap relief” is given.
The amount available to be given as overlap relief is the amount of profits which arise in any overlap periods. An overlap period is a period which falls within two basis periods. Guidance on computing overlap relief is at BIM71080.
Overlap relief is given as a deduction in calculating the profits of the trade for the tax year: