Overlap Relief Explained — Claiming It After Basis Period Reform (2026)

What Overlap Profits Actually Are

Under the old "current year basis" rules — which applied up to and including the 2022/23 tax year — your tax was based on the profits of the accounting year that ended within the tax year. That worked cleanly if your accounting date was 31 March or 5 April, because your accounting year lined up neatly with the tax year. But if you started self-employment partway through a year, or chose a different accounting date (say 30 April or 30 September), the early-year rules forced some of your profit to be counted in two different tax years at once.

That slice of profit counted twice is your overlap profit. You genuinely paid tax on it twice in those early years. It wasn't a mistake — it was how the system worked — but HMRC always recognised that you were owed that money back eventually. The amount of overlap profit you carried forward is your "overlap relief", sitting on your records waiting to be used.

How Overlap Relief Was Meant to Work

Overlap relief is simply the mechanism that hands that double-taxed profit back to you. Under the old rules you could only claim it in two situations:

• When you ceased trading — closed the business, retired, or incorporated into a limited company.
• When you changed your accounting date — in certain circumstances a change triggered partial relief.

In practice this meant a tradesperson who started out in, say, 2008 with a 30 April year end could be carrying overlap relief for fifteen years before getting any benefit from it. Because inflation eats away at the real value of a fixed figure, the relief you eventually claimed was worth far less in real terms than the tax you originally paid. That was always the unfair edge of the old system.

A Worked Example

Imagine Dave, a self-employed electrician, started trading on 1 January 2015 and chose a 31 December accounting date. Under the old opening-year rules:

• His first tax year (2014/15) was taxed on profits from 1 January 2015 to 5 April 2015 — about 3 months.
• His second tax year (2015/16) was taxed on the first full 12 months of trading — 1 January 2015 to 31 December 2015.

Notice that the period 1 January to 5 April 2015 got taxed in both years. If Dave made £24,000 in his first year of trading (£2,000 per month), that overlapping 3-month period represents roughly £6,000 of profit taxed twice. That £6,000 is Dave's overlap profit. It sat on his tax records, unrelieved, year after year — until basis period reform forced it to be used.

The Big Change: Basis Period Reform

HMRC's basis period reform abolished the current year basis and moved every unincorporated business — sole traders and partnerships — onto a tax-year basis. From 2024/25 onwards, everyone is taxed on the profits arising in the tax year itself (6 April to 5 April), regardless of their accounting date. This is meant to simplify things and align with Making Tax Digital for Income Tax.

The crucial year was 2023/24 — the transition year. To get everyone onto the new basis, anyone whose accounting date wasn't already 31 March or 5 April had to be taxed on a longer period: their normal 12 months plus a "transition" portion bridging the gap up to 5 April 2024. That extra slice is called transition profit.

Here is the part that matters most for overlap relief: the transition year was the moment all outstanding overlap relief had to be used. There is no carrying it forward any more — the old rules are gone, and so is the indefinite hold. Your overlap relief was deducted against your transition year profit in 2023/24, whether you actively claimed it or not, in theory. In practice, if your accountant or your return didn't pick up the figure, the relief may simply have been missed.

Spreading the Transition Profit Over Five Years

HMRC recognised that taxing more than 12 months of profit in one go could push traders into higher tax bands and cause cash-flow pain. So the net transition profit (after deducting overlap relief) is automatically spread over five tax years: 2023/24, 2024/25, 2025/26, 2026/27 and 2027/28. By default, one fifth is added to your taxable profit each year.

This is why, in 2026, many trades are mid-way through spreading. If you had transition profit, you are likely paying tax on a chunk of it in your 2025/26 return, with more to come in 2026/27 and 2027/28. It's easy to forget this is happening, which is exactly why a surprise appears when the figures land.

You can also choose to accelerate the spreading — bring forward more (or all) of the remaining transition profit into an earlier year. This can make sense if you had an unusually low-income year and want to soak up the extra profit while you're still within a lower tax band, or if you expect rates or your earnings to rise. It's an election made on your return, and it's exactly the kind of decision worth modelling with an accountant before you commit.

Why This Still Matters in 2026

The transition year is behind us, but overlap relief has not stopped mattering. There are two live risks for trades right now:

• You didn't claim your overlap relief in 2023/24. If your transition year return went in without the overlap figure deducted, you have very likely overpaid tax. That return can usually still be amended, but there are time limits — generally you have until 31 January 2026 to amend a 2023/24 return in the normal way, and only limited routes after that. Don't sit on it.
• You're still spreading transition profit. Each year's instalment needs to land correctly on your return through to 2027/28. Forgetting it understates your tax and risks penalties; double-counting it overstates your bill.

How to Find Your Overlap Relief Figure

If you suspect you had overlap profit and aren't sure it was used, the figure needs tracking down. Try these in order:

• Your old Self Assessment tax returns. The self-employment pages have a specific box for overlap profit carried forward. Look at returns from when you started trading onwards — the figure is usually carried forward year to year.
• Your accountant's records. If you've used an accountant, they should hold your overlap relief figure in their working papers, often going back to your opening years.
• HMRC's overlap relief figure request service. HMRC launched an online form specifically so traders and agents could request their overlap relief figure ahead of the transition year. If your own records are incomplete, HMRC may be able to provide the figure they hold — though only where the information exists in their records.

If you genuinely can't find it: the figure can sometimes be reconstructed from your opening-year accounts and the dates you started trading, but this is fiddly and easy to get wrong. If you've no returns, no accountant records and HMRC can't help, you may have lost the relief — which is exactly why keeping early-year paperwork matters so much.

Keep Records and Get an Accountant on the Figures

Overlap relief is one of those areas where the concept is simple but the numbers are unforgiving. A wrong figure either costs you money you're owed or invites an HMRC enquiry. The single most useful thing you can do as a trade business owner is keep clean, accessible records — your opening-year accounts, every Self Assessment return, and any correspondence with HMRC about overlap figures.

For anything involving the actual calculation — confirming your overlap relief, checking it was used correctly in 2023/24, deciding whether to accelerate the spreading, or amending a return where you may have overpaid — get a qualified accountant to run the numbers. This is not a DIY area, and the cost of an accountant's hour is small against the tax you could reclaim or the penalties you could avoid. Treat this article as the map, not the calculator.

Quick Reference: Overlap Relief and Basis Period Reform