Overlap relief for the self-employed

Overlap relief is a tax relief that can be claimed by self-employed people who have profits in one tax year that are less than the profits in the previous tax year. This can happen if you start a new business or if your business profits fluctuate.

Overlap relief allows you to deduct the lower profits from the higher profits. This can reduce the amount of tax you owe.

How to determine if your profits overlap

To determine if your profits overlap, you need to compare the profits from two consecutive tax years. If the profits in the first year are less than the profits in the second year, then you may be able to claim overlap relief.

For example, let's say that your profits in the 2022/23 tax year were £10,000 and your profits in the 2023/24 tax year were £15,000. In this case, you would be able to claim overlap relief of £5,000.

How to claim overlap relief

To claim overlap relief, you need to fill out a self assessment tax return. On the return, you will need to enter the profits from both the first and second tax years. You will also need to indicate that you are claiming overlap relief.

If you are claiming overlap relief for the first time, you will need to attach a statement to your tax return explaining why you are claiming the relief.

The benefits of claiming overlap relief

There are several benefits to claiming overlap relief. Here are a few of them:

• It can reduce the amount of tax you owe.

• It can help you budget for your tax bill.

• It can give you peace of mind knowing that you are taking advantage of all the tax reliefs available to you.

If you think you may be eligible for overlap relief, you should speak to a tax advisor. They can help you to determine if you are eligible and to claim the relief correctly.

Here are some additional things to keep in mind about overlap relief:

• You can only claim overlap relief once for each set of overlapping profits.

• You can only claim overlap relief if you have been trading for at least two consecutive tax years.

• You cannot claim overlap relief if you have changed your accounting date.