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Hi Chris,
I am studying this myself so you may get a more comprehensive answer from another member.
Overlap profits occur in a business' first financial year if they do not make up their accounts to the end of the tax year (5th April). The business will pay tax on a time apportioned part of their profits from the start of their financial year up until the start of April (this would be assessed and paid by the following January). The following tax year they would pay tax on their first full years profit hence the 'overlap profit' from the start of trading to the end of the initial tax year will have been taxed twice. The business gets to claim this back when they cease trading (it would be deducted from their final tax bill)
As an example if a company's financial year ran October 2012 - September 2013. The business would pay tax on half of its first years profit (Oct - Mar being 6 months) for the tax year 2012/2013 (assessed up to April), this would be paid by Jan 2014. For the tax year 2013/2014 the business would pay tax on its full years profit for its financial year October 2012 - September 2013 (as this year end falls within the 2013/2014 tax year). This leaves you with tax being paid twice on the time apportioned profit from October - March as outlined above.
In practice, try and persuade any new businesses you take on to make their accounts up to the end of the tax year and then it will be irrelevant. Telling them they will have to pay tax twice usually helps to make up the owners minds!
Hope this helps
Steve
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