Should The Tax Year End Change?

The tax landscape is changing rapidly.  This change is driven by the government’s push to replace paper-based tax filings with more economical digital filing procedures.

Alongside the push for digitalisation of the tax reporting system the government is also looking at simplifying other aspects of the tax reporting regime.

As part of this, it was recently announced that the tax year basis periods will be aligned for unincorporated businesses to the tax year end of 5 April or by concession to 31 March. More information can be found in our podcast on this topic (https://ballardsllp.com/podcast/medical/).  It has recently been announced that this change will be delayed so that the transition year will now not be earlier than the 2023/24 tax-year, but change is still happening fast!

The Office of Tax Simplification have recently issued a report which states that the government should take this reform a step further and change the tax year end from its current 5 April date.

Some of the reasons for this are noted as:

  • To simplify the tax system and make reporting simpler and more intuitive, in particular for those with international affairs.
  • To provide a better interaction with Making Tax Digital.
  • To align the tax year end with a natural commercial reporting date, making it easier to take figures from quarterly investment portfolio reports for example.
  • To bring the UK in-line with other countries, most of which have a 31 December tax-year end date.
  • Less chance of international tax leakage which may currently arise due to the mismatched tax years.
  • Easier to match-up data with other countries when exchanging information with their tax authorities.
  • Reducing the circumstances where someone has a period of no tax residence in any country due to the mismatched tax years.

So how did we end up with a 5 April tax year end in the first place?

This dates back to the middle-ages when the tax year began on 25 March being ‘Lady Day’, an important historical date.

As part of the UK’s move from a Julian to a Gregorian calendar, the tax year start date was moved to 5 April in 1752 (ending on 4 April), but then due to a mismatch between the Julian and Gregorian calendars relating to leap-years, the tax year start date was again moved in 1800 to 6 April with a 5 April end date and it has remained this way ever since.

So, are we unique having a tax year that does not end on a month end?

No, there are a handful of countries that also have mid-month tax year-ends as follows:

Nepal[1]15 July
Afghanistan20 December
Iran20 March
Ethiopia7 July

[1] Also the only country to have a flag that is not a rectangle.

How likely is it that the tax year end will change?

It is difficult to say.  This change would bring with it many costs and complications in the transitioning year, but given the governments drive to streamline the tax system and the ever-increasing internationalisation of businesses and their workforces, there are strong arguments to be made for an alignment of our tax year to that of our key international trading partners.

Given the unique position we have compared to other major economies, it is likely that this will be considered by the government with intent at some time in the future, but due to the size of the project it is unlikely that this will be a progression that is embarked upon in the short term.

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