Tax Year as we know it to stay, at least for now…
The Office of Tax Simplification ‘OTS’ published a document in June 2021 setting out its intention to review the benefits, costs and wider implications of changing the end of the tax year to either 31 March or 31 December. The... Read more
Blog30th Sep 2021
The Office of Tax Simplification ‘OTS’ published a document in June 2021 setting out its intention to review the benefits, costs and wider implications of changing the end of the tax year to either 31 March or 31 December. The UK tax year currently runs to 5th April each year.
The OTS have now published their findings and Bill Dodwell, Tax Director of the OTD said:
“It’s been stimulating to explore this issue, which has been of long-standing interest to many given the curiosity aroused by the UK’s use of a tax year running from 6 April to 5 April. Despite having carried out our review over a short period, many people have got in touch to share their insights and experience. A clear majority of those responding to us thought that the UK should adopt a different year end – but there was a range of views on whether to move to 31 December or to 31 March. This has been borne out by a range of surveys.
This report presents information and analysis to inform evaluation and debate about the implications of any potential change and its timing. It does not aim to make a specific recommendation about whether the tax year should change.”
There are clear benefits in adopting a tax year which is either aligned with the calendar year or with a calendar month-end, especially given the increasing automation, internet-enabled commerce and digitisation of financial information and accounting systems generally.
The costs of change are significant, both in terms of the financial cost and the opportunity cost. Whether moving to 31 March or 31 December, the work involved would consume government and private sector resources and make it much harder to implement other changes at the same time. A move to 31 December could also require changing the UK’s financial year.
Moving to 31 March would be much more understandable; it would align with the UK’s financial year, and assist taxpayers who prepare business accounts or report income from investments.
The systems impact of such a change, for government and the private sector, could be comparable with those for a change to 31 December, but the overall scale of what would be involved in a change to 31 March would be lower.
Given that the alignment of the tax year would be a major shake-up to the tax year as we know it, the OTS have recommended that such a change should not take place in the immediate future. However, they have also suggested that in the short term the government and HMRC should pursue ways to formalise arrangements to allow taxpayers to use a 31 March cut off to stand in for 5 April in respect of the calculation of profits from self-employment and property income, ahead of the implementation of Making Tax Digital “MTD” for Income Tax.
HMRC announced on 23rd September 2021 that the move to MTD would be postponed until 2024 for individuals and 2025 for partnerships.
If you would like any more information, please contact Carol Edwards or your usual AAB contact.