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

Overlap profit and trading allowance under Chapter 1 of Part 6A

Section 204A sets out how overlap profit is to be calculated for a trade where the trading allowance has been claimed, ensuring that overlap profit is reduced by the amount of the trading allowance relief.

• Where full trading allowance relief applies (reducing trade profits to nil) for one or both of the overlapping tax years, the overlap profit is treated as nil
• Where partial trading allowance relief applies and the deductible amount equals or exceeds the non-adjusted overlap profit, the overlap profit is also treated as nil
• Where partial relief applies for one of the two overlapping tax years and no trading allowance relief applies for the other, the overlap profit is the non-adjusted overlap profit minus the deductible amount from the partial relief calculation
• Where partial relief applies for both overlapping tax years, the overlap profit is the non-adjusted overlap profit minus the higher of the two deductible amounts