Should we change the end of the Tax Year?

The Office of Tax Simplification (OTS) has issued a policy paper ‘Potential for moving the end of the tax year - Scoping document’. It offers two options to replace 5 April as the end of the tax year, 31 March or 31 December. 

The UK’s tax year for individuals has run from the 6 April to the 5 April since 1800, following the introduction of the Gregorian calender to Britain in 1752. Most other countries use either the calendar year or run their tax year to 31 March, whilst the most popular Company accounting period end dates are also 31 March and 31 December.

The OTS is undertaking a high-level review of the issues, costs and benefits of a change to the tax year end date for individuals, to include the wider implications for other areas such as tax credits and benefits.

The options as envisaged by the OTS are:

31 March:

• This is the end of a calendar quarter, the nearest month end date to the end of the current tax year, and the UK financial year end date used by the UK government for its own accounts, by reference to which Corporation Tax rates apply.
• The transitional year would be shortened by five days and run from 6 April to the following 31 March.

31 December:

• Regimes with 31 December tax year ends include the USA, France and Germany. In 2002 Ireland moved its government accounting and tax year ends to 31 December.
• The transitional year would be shortened by three months and five days, running from 6 April to the following 31 December.

In carrying out its review, the OTS will consider:

• The implications for the Exchequer including the tax gap.
• Compliance generally, especially for Income Tax, PAYE, National Insurance Contributions, Capital Gains Tax and Inheritance Tax.
  • Presumably the Self Assessment filing and payment deadlines may also be moved if 31 December were chosen.
• The financial and administrative implications for individuals, employers and businesses.
• The practical implications for HMRC such as the operation of their systems.
  • The continuing rollout of Making Tax Digital  is likely to having a bearing here. Currently, the Income Tax pilot is restricted to those businesses with a 5 April year end.

Following their review the OTS plans to publish a report over the Summer of 2021. The policy paper does not give any indication of when any change might take effect.

Why does 5 April tax year end matter?

Anita Monteith of the Institute of Chartered Accountants in England and Wales (ICAEW), writing on Accountingweb looks at the impact of the 5 April year-end on for Making Tax Digital (MTD) for Income Tax Self-Assessment, she says:

"...Mandation of MTD ITSA is near and will require reporting based on the digital record of when transactions take place. It would help to be able to align the quarterly reporting obligations for VAT with those for income tax.

It would also help to align them with the other different sources of income to be reported for income tax. Otherwise, we could see an individual having multiples of the headlined ‘four’ quarterly reports to make each year.

For example:

• Income tax is charged on property income based on tax years, 6 April to 5 April, so quarterly reports will most likely be made for quarters to 5th of each month rather than to month ends. MTD ITSA does allow reports to be submitted to any date within a month.
• Business income is taxed either on the tax-adjusted accounting profits of the accounting period ending in the tax year or, as many simpler businesses prefer, on the tax-adjusted profits of the period 6 April to 5 April. Quarterly reports will most likely fit in with this.
• If the business is VAT registered, it will make VAT returns which must be prepared to calendar month ends. A VAT registered business will therefore most likely choose a calendar month-end accounting date."

Anita concludes that:

"The consequences of this [having a 5 April tax year-end] are that a VAT registered sole trader with a buy to let property would be making MTD reports on at least eight occasions in each year."

What did you think?

We ran a Poll until 7 July 2021, the results are here.

Useful guides on this topic

Making Tax Digital index
Track the MTD timeline, check eligibility for the Pilot scheme, read our survival guides

Accounting periods and tax basis periods
Which date do I choose? Does it matter? Can I change my accounting date?

Tax Calendar 2021/22
What do you have to do and when this tax year?

Deadlines: Compliance (individuals & companies)
Every UK taxpayer has filing obligations and deadlines. There are penalties for late and inaccurate submissions. What are the deadlines for different types of taxpayer? What penalties can be charged for missing the deadlines?

New business: Sole trader compliance checklist
Starting in business? A new business registration checklist.

Penalties: SA late filing, payment, notification & error
Self Assessment (SA) tax penalties: what penalties are due for outstanding tax returns? What penalties are due for late payment? Special rules for Covid-19 delays.

Accounts: Tax health check (self-employed)
This is a checklist that will provide you with a lot of pointers to key areas of discussion with sole trader clients.

External link

Policy paper: Potential for moving the end of the tax year - Scoping document