Self-employment cease after 2.9 years

[Boyd]

Joined partnership 1 Jan 2009, partnership accounts made up to 30 June each year.
Left partnership 28 Oct 2011.
Because of short period of trading, and overlaps, will all tax years change to actual profits arising in each tax year?
Thank you for your help. Nick

[robbob]

Hello Nick

Presuming there are no losses involved in any year
The last tax return basis period for 2011/12 should be the period 1/7/2010-28/10/2011 * you should then deduct your overlap profit brought forward - you do not go back and change any previous calculations..
Note if you add up the partnership income you have been allocated from start to finish this should exactly match what has been declared on all of the tax returns submitted, the overlap relief you are claiming now being the exact proportion of the profits you have previously been taxed twice on (calculated and presumably declared on the 2009/10 tax year).

* all partnership income up to 30/6/2010 should have declared on the second last tax return (2010/11). The last basis period just mops up the balance of your income not previously declared.

http://www.hmrc.gov.uk/manuals/bimmanual/bim71025.htm

[Boyd]

Many thanks for replying so quickly, I did thank you the same day, but for some reason I cannot see my note in this correspondence.
It looks as though there are 2 periods of overlap, the first 6m to 6/09, because (as you say) the 2nd tax year is based on first 12 months.
Do you agree that a 2nd overlap arises on the 6m to 6/10?
Everything adds up to the total profits once the 2 overlaps are offset.

Once the overlap is offset against the final year, is the balance of the overlap simply offset against the previous year 2010/11?

Many thanks again, Nick

[robbob]

Hello Boyd

Unfortunately i stopped short of doing the full calcs as it gets pretty complicated.

(1) If we say basis period 5/4/09 tax year is 1/1/09-5/4/09 - simply daily potion of first accounts period
(2) basis period for 5/4/2010 tax year - is first 12 months 1/1/2009-31/12/2009 - this is the tricky bit as it is referenced to 2 different accounting periods - the overlap here should simply be the bit that was already on the 2009 tax return.
(3) basis period for 5/4/2011 tax year is ye 30/6/2010 - it looks like there is some more overlap profit generated here as part of this period has already been included on return (2)
(4) basis period for 5/4/2012 tax year is 1/7/2010-28/10/2011 and the overlaps in (2) and (3) are now relieved.

Do you agree that a 2nd overlap arises on the 6m to 6/10?

Yes i would agree that there is a second overlap generated in (3) but i would say this would be with reference to the period 1/7/2009-31/12/2009 which has been included on (2) and (3).

Once the overlap is offset against the final year, is the balance of the overlap simply offset against the previous year 2010/11?

Not sure what you are saying here

If total overlap at (3) is 10,000 and profit for period 1/7/2010-28/10/2011 is £25,000
Then profits for 11/12 are simply 25,000-10,000 = £15,000 - there is no recalculation for 10/11

Things probably get a more complicated if you are saying the overlap profit exceeds the 1/7/2010-28/10/2011 profits.I would suspect there is a loss for the final period that can be utilised as normal.

I now wish i had done a worked example as this is the best way of ensuring a mistake has not been made somewhere along the way.

[Boyd]

Again, thank you very much for confirming that.

My overlap-relief point was about the relief exceeding the profit for the final 16 months. Do you think that it creates a Terminal Loss, or carried back and offset against the previous year 2010/11? Nick

[Boyd]

Since you are helping me so generously, am I allowed to offer you a more tangible expression of gratitude? Nick