Profit overlap and self-employment

cashewnut

Hi all, just wondering if anyone has an understanding of profit overlap and whether or not I need to do anything until I cease being self-employed.

I became self-employed in September 2007 and for the first few years (until 2012) had an accountant. I do my own tax returns now.

My accounting period is September-August each year and looking at my first few tax returns I see my accountant filled in a section of profit overlap, let's say £4,000 for simplicity's sake. He would carry this over with each tax return.

HMRC explains this about profit carryover:

"Overlaps can happen in the first 3 years after a business starts up or in a year in which there is a change of basis period because of a change of accounting date. For example, if your business started on 1 January 2015 and your first accounts are for the 12 months to 31 December 2015, your basis periods are:

2014 to 2015, 1 January 2015 to 5 April 2015
2015 to 2016, 1 January 2015 to 31 December 2015
The period of overlap is 1 January 2015 to 5 April 2015. So, if the profit for the 12 months to 31 December 2015 is £12,000, the overlap profit is (96/365 × £12,000) = £3,156 (over 96 days)."

However, since I started doing my own tax returns I have never included my profit overlap as I didn't realise at the time it existed!

Should I start putting it back in when I fill in my tax returns? Or is it something I don't need to worry about for now? I have no plans to stop being self-employed, but I'll be going on maternity leave in about six weeks and my income will be taking a significant tumble for the next year at least.

Thanks if anyone's able to help at all. Not sure getting rid of my accountant was a wise move - filling in my tax return makes me break out in a cold sweat, even though I'm meticulous about keeping records of all income, and file all my receipts away month by month!

Pennywise

You can just put that same figure as overlap brought forward and carried forward on this years tax return and keep doing it for future years until you cease.

Can I just check that you're still putting the right yearly accounts on your returns? A lot of people get confused and end up putting figures on the wrong year. Your 17/18 tax return should show the profit & loss figures for year end 30/9/17. If you're doing that, you're fine.

When you change year end or cease, you'll end up with two accounting periods on the same tax return, i.e. more than a years' profits and that's when you have to adjust the overlap relief.

cashewnut

Thanks so much for your reply. I think I'm doing it right - I just picked up where my accountant left off. I will be shortly doing this year's tax return (for the payment in January 2019) and my figures will be for the period 01/09/16 to 31/08/17. Does that sound right?

Next year's form will cover sept 17 to aug 18, at which point I think I will apply to reduce my payments on account to bear in mind my impending maternity leave.

If this is incorrect I may need to get myself to another accountant...