Income Tax (Trading and Other Income) Act 2005 section 205

Deduction for overlap profit in final tax year

Section 205 deals with how overlap profit is relieved when a person permanently ceases trading, ensuring that total profits assessed over the life of the trade equal the total profits actually earned.

• When a person permanently stops trading, they may deduct their accumulated overlap profit in the final tax year
• The deduction is calculated by adding together all overlap profits from every overlap period
• Any overlap relief already claimed on a previous change of accounting date is subtracted from that total
• The remaining balance is the full deduction allowed against the final year's trading profits