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OTS to review tax year end date

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‘It is a truth universally acknowledged...’ that the UK tax year ending on 5 April is a bit quirky and doesn’t line up with the usual calendar year end, or any of the common quarter days. The Office of Tax Simplification is considering changing the tax year end to something more convenient, more logical, and more closely aligned to other tax regimes. This might also simplify some calculations when tax rates change during an accounting period.

Not a lot of people know this, but the reason for the UK’s quirky tax year ending 5 April derives from the move from the Julian calendar to the Gregorian calendar in the 18th century. Before then, rents were due and bills settled, including tax, on Lady Day, 25 March. The change in calendar added 11 days so, to maintain the 12-month tax period, the tax year end date was moved to 5 April.

While it’s an interesting back story, this date doesn’t align with common accounting periods or international tax years, often causing apportionments and various other additional complications.

For this reason, the Office of Tax Simplification is going to look at changing the UK tax year end, possibly to 31 March or 31 December. The March date is just a few days’ adjustment and might not alter most of the familiar filing dates. The December date is frequently used by many countries, such as the USA, France, Germany, China, Japan, Spain and Ireland. Other countries are different, such as Australia with a 30 June year end and South Africa with 28/29 February year end.

The key question is whether this really matters any more. Most employees pay their tax weekly or monthly through PAYE. Companies pay their tax in line with their financial year end (nine months afterwards unless they have to pay by instalments), capital gains tax payments on property sales are due within 30 days of a property sale, and generally the move is towards Making Tax Digital for VAT and other taxes.

Changing the tax year-end is not a no-cost administrative exercise. Consider the cost of the changes to the HMRC systems and manuals, the media campaigns notifying taxpayers, changes to software by individuals and businesses, the Parliamentary time debating and changing legislation. Putting this together, the Office of Tax Simplification might not live up to its name, and the government might consider alternative uses for its time and resources.

You don’t need VAR (video assistant referee) to see that the UK is well wide of the goal of tax simplification. Tinkering with the year-end might have been helpful to simplify some tax calculations in Jane Austen’s times. However, in the digital era, there are programs and apps that can easily sort this out. The move towards in-year filing and tax collection suggests the year end makes little difference anymore. 

For details of the review, see The OTS is due to publish its report in summer 2021.

Fiona Bell, RSM UK.

Issue: 1537
Categories: In brief