The Office of Tax Simplification (OTS) has published a scoping document setting out plans to review the implications of moving the tax year end for individuals.
The report is set to be published over the Summer, and will consider the potential benefits, costs and the wider implications of moving the end of the tax year in relation to tax compliance, the practical implications for taxpayers, employers and businesses, and the administrative impact for HMRC.
The current tax year
Currently, the tax year for individuals runs from 6 April to the following 5 April. The OTS states that this is for historical reasons, with the UK’s modern tax system and infrastructure designed around this date, which has been in use for centuries.
This is in comparison to the financial year end for businesses, where in general, businesses account to a month end date.
Moving the end of the tax year to 31 March
The OTS has launched this review as part of HMRC’s current call for evidence on reforming the tax administration framework, with the aim of simplifying, and easing the administrative challenges of the current system.
The main focus of the OTS review will be on the implications of moving the tax year end date from 5 April to 31 March. If this change were to go ahead, the tax year would be shortened by five days in the transitional year, and run from 6 April to the following 31 March, to align with the UK’s financial year which runs from 1 April to 31 March.
31 March is the end of a calendar quarter, and the nearest month end date to the end of the current tax year. Being the UK’s financial year end date, it’s also when the UK government makes up its own accounts, and the date to which corporation tax rates apply.
The OTS will also consider alternative approaches, which will not require a change of date, to address practical issues that are connected with the year end date of 5 April.
Moving the end of the tax year to 31 December
The report will also consider the possibility of moving the end of the tax year to 31 December, aligning with countries such as the USA, France, Germany and Ireland who already have a tax year end date of 31 December.
In this instance, the transitional year would be shortened by three months and five days and run from 6 April to the following 31 December.
The potential impact
Natalie Pollard, Tax Senior Manager at Smith Cooper comments:
“Whilst a change of date would present significant administrative challenges for taxpayers and HMRC, aligning the end of the tax year with a quarter end, or the financial year would certainly benefit taxpayers in the long-term.”
“Although changing the date would mean an administrative overhaul of tax systems and software, it could help to ease the pressures faced by the self-employed when it comes to balancing different reporting deadlines for VAT and income tax for example”.
“It will be interesting to see what recommendations are made in the report later in the summer”.
The OTS has also recently launched proposals to simplify Capital Gains Tax in a second report following a review requested by Chancellor Rishi Sunak in July 2020.