Can Overlap Relief Be Lost Completely ?

[GANDONAS22]

Small guest house and café with partnership owners winding down and reducing income, future scenario is that the tax liability will fall to £10,000 each thus dropping below personal allowance of £11,850. Overlap relief is being carried forward at £26,000 ie £13,000 each , question is whether or not this will be lost on cessation ?
Or can it be recovered in any way as it is of course tax that was paid twice.
Any help and comments appreciated.

Thanks

[robbob]

You can incrementally change your year end to release part of the overlap profit each year, it may be to late though if profits are already below the pa level.

Failing that its set against other income of the relevant year - cessation year and other income perhaps?

terminal loss relief can be carried back 3 years , i can't remember from memory if that includes released overlap - hmmmm

could there be large balancing charge on cessation could be useful if you have a wad of plant on which aia's have been claimed

i fear you may be out of luck

[bd6759]

You can incrementally change your year end to release part of the overlap profit each year,

No you can't. s217 ITTOIA

[GANDONAS22]

Thanks all , then it would be practical to move from the existing year end 30th April to 31st March , in this case meaning a basis period from 01/05/17 to 30/04/18 then 01/05/2018 to 31/03/19 , 23 months , preparing 11 and 12 month accounts and claiming all overlap relief. Current profits would be £25,550 less pa = £13,700 less overlap relief £13,295 = £405 tax liability, Make sense ?

[robbob]

Apologies for not pointing out the caveat reference basis period changes that bd6759 has highlighted

There are extra rules with regard to accounting period changes qualifying for the change in basis period changes that should be highlighted, specifically the following restriction that for a change of accounting date to also have am normal change in basis period the change may need to be "for commercial reasons" under certain circumstances and these reasons should be communicated to hmrc, specifically a tax advantage is not a commercial reason as far as hmrc is concerned and the legislation has been written to confirm this point!- so if there are no other reasons for the change other than tax you may be barred form a change in that regard with regard to the normal basis period adjustment.

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim81045

Where a change of accounting date takes place in Year 4 or later years of trading three conditions must be met for the basis period for the year of change to end with the new accounting date.

Here is the important third rule

in cases where there has been an earlier change of accounting date (which resulted in a change of basis period) in the previous five years:
The latest change must be made for commercial reasons, and
those reasons must be set out in the SA return referred to above.

The other two conditions are more mechanical and less likely to be an issue - these are as follows.

the first accounts to the new date must not exceed 18 months
a notice of the change of accounting date must be given:
in a self assessment tax return for the year of change that applies to the person carrying on the trade, and
on or before the date that the return is required to be made

[GANDONAS22]

Thank you indeed for this and as explained per the HMRC notes

"The latest change must be made for commercial reasons"

This however is the only and first change and presumably would not have to meet the "must be made" requirement of a further change done purely for a tax advantage ?

Thoughts please

Many Thanks

[bd6759]

You cannot change you accounting date from 30 April to 31 March because the period of account will exceed 18 months. Don't confuse periods of account with basis period.

You must create accounts to a date that is no more 18 months after the start date. You cannot simply apportion a longer period.