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HMRC Clarifies Overlap Relief Calculation Process for Taxpayers

Published by UK Property Accountants
Published Date: October 20, 2023

In a recent update, HMRC has provided crucial information regarding the calculation process for overlap relief, an essential component of the changes brought about by the basis period reform, applicable from 1 April 2023.

This reform impacts businesses, particularly sole traders, self-employed individuals, and partnerships, with accounting dates other than 31 March or 5 April.

Overlap Relief Calculation

HMRC has clarified that overlap relief calculations are contingent upon the accurate recording of a business's profit and loss figures in HMRC systems. The calculations are based on data submitted by taxpayers in their previous year tax returns.

Notably, HMRC can only provide overlap relief if the necessary information has been accurately submitted in tax returns. If this data is missing, HMRC may assist by providing historic profit figures, allowing for the recalibration of overlap relief.

Understanding Overlap Relief Calculation

Obtaining Overlap Relief Figure

To obtain the overlap relief figure, businesses must fill out an online form available on the HMRC website. Accountants can also request this figure on behalf of their clients. However, it is crucial to initiate this process well in advance as HMRC requires up to three weeks to review the provided information.

Key Information Required for Overlap Relief Calculation

When filling out the online form, taxpayers need to provide specific details, including:

  • Customer name
  • Unique Taxpayer Reference Number (UTR) or National Insurance number
  • Business name or description
  • Business type (sole trader or partnership)
  • Partnership’s UTR (if applicable)
  • Commencement date of self-employed business or partnership
  • Most recent period end date for profit or loss reporting
  • Years in which the accounting period changed, if applicable

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Understanding the intricacies of overlap relief calculation is vital for businesses transitioning into the new tax year basis. By following HMRC’s guidelines and providing accurate information, taxpayers can ensure a smooth process and avoid delays in their tax filings.

If you have any further queries regarding any kind of issues related to taxation in the UK, we're here to help.

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