Income Tax (Trading and Other Income) Act 2005

Overlap profits and losses U.K.

204 Meaning of “overlap period” and “overlap profit” U.K.

In this Chapter—

• “overlap period” means a period which falls within two basis periods, and

• “overlap profit” means profit which arises in an overlap period.

205 Deduction for overlap profit in final tax year U.K.

(1) If a person permanently ceases to carry on a trade in a tax year, a deduction is allowed for overlap profit in calculating the profits of the trade of the tax year.

(2) The amount of the deduction is calculated as follows.

Step 1

Add together the overlap profits arising in all overlap periods.

Step 2

Subtract from that any deductions for overlap profit made under section 220 (deduction for overlap profit on change of accounting date).

The balance is the amount of the deduction allowed under this section.

206 Restriction on bringing losses into account twice U.K.

If a loss arises in, or is apportioned under section 203 to, two overlapping basis periods, the amount of the loss—

(a) is brought into account in calculating the profits of the first basis period, and

(b) is not brought into account in calculating the profits of the second basis period.

207 Treatment of business start-up payments received in an overlap period U.K.

(1) This section applies if—

(a) a person carrying on a trade receives a business start-up payment (see subsection (3)) in a period which falls within two basis periods, and

(b) the payment is not a lump sum payment.

(2) The payment—

(a) is brought into account in calculating the profits of the trade of the first basis period, and

(b) is not brought into account in calculating the profits of the trade of the second basis period.

(3) A “business start-up payment” means a payment under a Business Start-Up scheme which is of the kind originally known as enterprise allowance and is made—

(a) in England and Wales, by a training and enterprise council pursuant to arrangements under section 2(2)(d) of the Employment and Training Act 1973 (c. 50),

(b) in Scotland, by a local enterprise company under section 2(4)(c) of the Enterprise and New Towns (Scotland) Act 1990 (c. 35) in relation to arrangements under section 2(3) of that Act, or

(c) in Northern Ireland, by or on behalf of the Department for Employment and Learning under section 1(1A)(d) of the Employment and Training Act (Northern Ireland) 1950 (c. 29 (N.I.)).