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Changes: Understanding Overlap Relief and Taxation Changes for Self-employment

Updated: Oct 16, 2023


The world of self-employment is bracing for some significant shifts in the way profits are taxed, and this brings a limited time frame to claim relief for any profits that might have been taxed twice.


Understanding the Upcoming Changes

Until the 2022/23 tax years, if you were self-employed, you would have been taxed on your profits based on the accounting period that ended within that tax year. But from 2024/25 onwards, you'll be taxed on the profits made specifically within the tax year.



The Transition Year and Its Implications

The 2023/24 tax year is going to be a transitional year, marking the shift from the old to the new taxation system. If your accounting date doesn't align with the tax year, this means that you’ll be taxed on more than 12 months’ profits during 2023/24, although some relief can be claimed to lessen the burden. For instance, if your accounting period ends on 30 September, your assessment for 2023/24 will combine the profits up to 30 September 2023 and the transition profits from 1 October 2023 to 5 April 2024, after considering any overlap relief.


Overlap Relief and Why It’s Important

Overlap profits are profits that get taxed twice, and this can happen either in the early years of a business or when the accounting date changes. The relief for such profits can be claimed for the last time in the 2023/24 tax year. The claims for this relief need to be correctly made in your 2023/24 tax return, due by 31 January 2025.


Figuring Out Your Overlap Profits

Finding out your overlap profits might mean looking back through your financial history. An online form, which is expected to be available from 11 September 2023, will be provided by HMRC to make requests for details about overlap relief. It’s important to use this form to make sure your claims are accurate and match the records held by HMRC from your previous tax returns.


Don’t Miss Out!

If relief for overlap profits is not claimed in the 2023/24 tax year, it will be lost. So, it's crucial to be proactive and gather all the necessary information about your overlap profits to make timely and accurate claims and protect your financial interests.


Partner note: ITTOIA 2005, ss. 204 – 207, 220; FA 2022, s. 7 and Sch. 1, para, 68

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