Income Tax (Trading and Other Income) Act 2005 section 204

Meaning of "overlap period" and "overlap profit"

Section 204 defines two key terms — "overlap period" and "overlap profit" — which are central to the basis period rules that ensure total profits assessed over the lifetime of a trade equal the total profits actually earned.

• An overlap period is any period that falls within two separate basis periods
• Overlap profit is the profit arising during an overlap period
• These definitions underpin the mechanism that prevents profits from being taxed twice over the life of a trade
• Overlap profits are eventually relieved, typically on a change of accounting date or when the trade ceases