Is it feasible for the UK to change the end of the tax year?

LONDON, UNITED KINGDOM - 2021/07/09: Carving with the words HM Revenue & Customs seen on their building in Whitehall, London. (Photo by Dave Rushen/SOPA Images/LightRocket via Getty Images)
The UK’s tax year for individuals currently runs from 6 April to the following 5 April. Photo: Dave Rushen/SOPA Images/LightRocket via Getty

The UK is looking into overhauling a centuries-old anniversary date: the end of the tax year.

A scoping document was published by the Office for Tax Simplification (OTS) in June looking at the pros and cons for the potential move, with a more extensive report to be published later this summer on an as-yet unspecified date.

The UK’s tax year for individuals currently runs from 6 April to the following 5 April. This is partly because of the removal of 11 days from the calendar in 1752, when the country shifted from the Julian to the Gregorian system. The UK’s modern tax system and infrastructure have been developed around this quirk.

By contrast, accounting systems used by businesses have been developed around month and quarter ends. Across businesses and internationally, it is common to account to a month end date.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), says that aligning the tax year with the end of the calendar year has the potential to provide a "welcome simplification" for firms, particularly if they work cross-border.

Indeed, many countries use 31 December for their government accounts and the two most popular accounting dates for multinationals are the calendar year end date of 31 December and 31 March.

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The UK financial year for government accounting and for companies runs from 1 April to 31 March.

The scoping document from the OTS sets out two scenarios: moving the tax year to 31 March, or moving it to 31 December.

A recent survey of 500 small and medium-sized businesses by accounting firm BDO found that 91% supported a move of the date for filing tax affairs.

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However, this change won't come without challenges. BDO said that the transition would have to be planned carefully with longer deadlines to give room for the transition.

It said businesses supported short-term disruption in order to make the system fit for the modern age.

The BCC concurred with this view. "HMRC must tread carefully in making such a fundamental change to tax practises to avoiding adding to the cost and administrative burden faced by businesses," said Thiru.

“Any changes would need to be underpinned by improved communication by HMRC to create increased awareness and more frontline support, geared towards making compliance easier for SMEs.”

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In February, Anita Monteith from the Institute of Chartered Accountants (ICAEW), suggested in a Financial Times op-ed that post-COVID recovery would be a good time for the overhaul.

“Individuals and businesses transact across borders all the time but it is unnecessarily cumbersome to have to deal with non-aligned tax jurisdictions. Added complexity means more time, more mistakes and generally increased compliance cost. The US, France, Germany, Spain, Ireland and even Jersey (a British dependency) all use calendar years,” she wrote.

The ICAEW said that its members showed an overwhelming preference for a move away from 5 April — and that those with international connections would prefer a move to 31 December.

“Any change to the tax year will need to be considered in the light of other planned reforms to the system, and businesses will need time to prepare and implement changes properly,” said Montieth.

Closeup woman filling form of Individual Income Tax Return,
Moving the tax year could be a logistical challenge, but has been held up as potentially diplomatically useful. Photo: Getty

Ireland is held up as an example of a jurisdiction which made this move successfully in 2002 — transitioning while the Irish pound migrated to the euro.

The plan was announced in July 2000 by then finance minister Charlie McCreevy, who said it would put income tax collection on a “more rational and simplified basis” and that combining this with the changeover to the Euro would allow the IT changes to be made in one go.

One reason given for the change at the time was to get in step with diplomatic allies for the financial year.

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In carrying out its review, the OTS said it would consider the implications for the Exchequer, the tax gap and compliance generally, in particular in relation to Income Tax, PAYE, National Insurance contributions, Capital Gains Tax, and Inheritance Tax.

A HMRC spokesperson said the review was an own-initiative review by the OTS. "We will consider the findings once the report is published," it said.

"The OTS provide independent advice for the government. It is for government to make decisions on tax policy.”