What is Overlap Profits? UK Definition 2026/27
Quick Answer
Profits taxed twice due to accounting year rules - can be deducted on cessation.
Definition of Overlap Profits
Overlap profits occurred when self-employed individuals were taxed on the same profits twice due to basis period rules (profits taxed in opening years and again in later years). The basis period reform from April 2024 eliminated this going forward. Existing overlap relief can be deducted in the transition year (2023/24) or on cessation.
Overlap Profits — Key Facts for 2026/27
| Reform date | April 2024 |
| Transition year | 2023/24 |
| Relief available | On cessation |
| New basis | Tax year basis |
How Overlap Profits Works — Example
- 1Overlap profits from start-up: £10,000
- 2Business ceased 2026
- 3Final year profits: £30,000
- 4Less overlap relief: -£10,000
- 5Taxable final year: £20,000
How Overlap Profits Affects Your Tax
The basis period reform simplified self-employment taxation but created a transition where extra profits were taxable in 2023/24. Overlap relief helped offset this. Going forward, all self-employed pay tax on the tax year basis.
Official HMRC Guidance on Overlap Profits
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Basis period reformFrequently Asked Questions about Overlap Profits
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.