i need to know how to claim back 310 days of overlap profit…

Question

Answer 1

UK Tax Professional: Tony Tax, Tax Consultant replied 13 years ago

Thanks.

Assuming the accounts ran from 1 January 2007 to 31 May 2008 and you became a partner on 1 January 2007, your basis periods are as follows:

2006/07

1/1/07 to 5/4/07

2007/08

1/1/07 to 31/12/07

2008/09

1/6/07 to 31/5/08

The overlap periods are 1 January 2007 to 5 April 2007 and 1 June 2007 to 31 December 2007.

The only way you can use any of the overlap relief without ceasing to be a partner in the business is for the partnership to change it's accounting date so that there is a period of account longer than twelve months. So, if the accounting date was changed to 30 November, for example, that would be an eighteen month period and you could use six months of your overlap relief. However, only one change of accounting date can occur for tax reasons in a five year period.

Answer 2

UK Tax Professional: Tony Tax, Tax Consultant replied 13 years ago

What you need to remember is that although you are a partner, you are effectively self-employed and your personal business commencement date was 1 January 2007 and your first accounting date was 31 May 2007 (less than 12 months after you started).

If the initial accounting dates after you became a partner were 31 May 2007 and 31 May 2008 then the following applies:

Your first tax year as a partner is 2006/07. The basis period for that year runs from 1 January 2007 to the following 5 April.

The second tax year is 2007/08. If there is an accounting period that ends in this year (which there is, 31 May 2007) but it is less than twelve months after you started trading (1 January 2007) then you are taxed on the first twelve month profits (1 January 2007 to 31 December 2007) so the basis period is the first twelve months that you were a partner.

The third year is 2008/09. The basis period is the twelve months to the accounting date which ends in 2008/09, 31 May 2008.

The overlap periods are 1 January 2007 to 5 April 2007 and 1 June 2007 to 31 December 2007.

Answer 3

UK Tax Professional: Tony Tax, Tax Consultant replied 13 years ago

In one of my earlier posts I explained how to use the overlap relief. There are only two ways to do this.

If the business ceased or you left the partnership, you could use your overlap relief to reduce your final tax year profit or create a loss.

If the business changed it's accounting date so that the accounting period was longer than twelve months, you could use some of the overlap relief but this can only be done once every five years. So, if the accounting period was extended by six months you could use six months of your overlap relief.

Answer 4

UK Tax Professional: Tony Tax, Tax Consultant replied 13 years ago

You personally don't have an accounting period which you would have if you were a sole trader. The business in which you are a partner has an accounting period so any extension to that would affect the other partners.

I seem to remember that in pre self-assessment days the maximum an accounting period could be was eighteen months but I can't find a limit under the self-assessment rules. I couldn't see a problem in working out what profits were taxable when if the date was extended to the following 5 April which in your case would extend the accounts to cover a 22 month period. In any event, if the partnership has changed its accounting date within the last five years then it cannot be done again until five years have passed.

Edited by Tony on 11/27/2009 at 2:24 PM EST

Answer 5

UK Tax Professional: Tony Tax, Tax Consultant replied 13 years ago

That's OK.

Normally, you wouldn't cease a business which was a sole tradership that was turning into a partnership. It would just continue.

Assuming the partnership started as a completely new business with a new tax reference number on 1 January 2007 then you can have one change of accounting date to absorb the overlap relief in the first five years. Since you've only had one set of accounts (to 31 May 2008), you haven't had a change yet so you should be OK.

The easiest way to avoid overlap relief is to run your first set of accounts to the following 5 April and then stick with that date. By doing that, you avoid the double taxing of early years' income.

If you have any further queries please let me know.

Answer 6

UK Tax Professional: Tony Tax, Tax Consultant replied 13 years ago

If the business is being treated as continuing and not ceasing by the tax office then the business has already changed it's accounting date from 31 May to 31 December and then back to 31 May again.

I have to say I'm not sure what the accountant is doing and you ought to sort this out with them. Assuming the nature of the business hasn't changed there seems to be no reason why cessation accounts had to be drawn up as you could have just joined from 1 January 2007 and continued to have accounts drawn to 31 May as was the case prior to your joining.

As a sole trader, your husband would have had a personal tax reference and will continue to do so. When the partnership started, that should have been allocated a tax reference number as the partnership has to have a tax return prepared as well as each of the partners.

Answer 7

UK Tax Professional: Tony Tax, Tax Consultant replied 13 years ago

No problem. Sometimes I forget that people don't necessarily know what information to provide as they don't work in tax so I appeciate you persevering.

It's a good idea to see the accountant. I'm confused as to what he appears to have done to be honest. I always advise clients who are starting a new business to draw their accounts up to 31 March or 5 April to avoid the overlap problem.

Don't click accept or your card will be recharged.

Edited by Tony on 11/27/2009 at 5:30 PM EST

i need to know how to claim back 310 days of overlap profit…

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