Commentary on Sections Overview Section 856: Overlap profits from partners’ notional businesses
3205.This section sets out a special rule to deal with the possibility that the deduction of overlap profit may produce a loss. It is based on section 111(9) of ICTA.
3206.A consequence of the application of the trading income basis period rules is that there may be overlap profit (see section 204 of this Act) of a partner’s notional business.
3207.Subsection (1) deals with the case where a deduction is made for overlap profit on a change of accounting date (to a date later in the tax year), in accordance with section 220.
3208.Subsection (2) deals with the case where a deduction is made for overlap profit on cessation of the firm’s actual trade, in accordance with section 205.
3209.Subsection (3) gives relief for any excess of overlap profit over the income otherwise to be assessed for the year of the change of accounting date or cessation. This excess would not usually qualify for relief against total income because it is not a trading loss. But this section ensures that relief is given in that way.