Could the UK’s tax year-end be changing?
Jul 08, 2021
The UK’s tax year-end is 5 April, which isn’t even at the end of the month, let alone at the end of the year. We are the only country with this unconventional tax year-end, a legacy from many hundreds of years ago, and the Office of Tax Simplification (OTS) is now examining the implications of updating it.
When could the tax year-end move to?
In its review, the OTS is exploring the effects of moving the UK’s tax year-end from 5 April to 31 March. 31 March is the closest month and quarter end to 5 April, and this would also align our tax year-end with the UK’s financial year-end.
It will also be considering the option of 31 December. Various other countries including France, Germany and the USA work to a calendar year end. Ireland moved its tax year-end from 5 April to 31 December back in 2002.
Why the change now?
This review is part of a much broader remit to update and modernise the UK’s tax administration system. Our economy is rapidly embracing digital advancements, and the current pace of change has been further accelerated by the Covid pandemic.
So if we are to remain fully aligned with general business practice and the rest of the world, then now is the time to streamline and simplify our processes.
What are the implications of the change?
As with such all major developments, changing the UK’s tax year-end date will have various consequences, some good and some bad.
Aligning the date with a month or calendar end would help to simplify many accounting processes and reduce general administration burdens. It would tie in very sensibly with the advent of Making Tax Digital for income tax self assessment, which will require quarterly reporting based on the digital record of when transactions take place. It would also help to improve our international competitiveness, simplifying cross border transactions and tax relief calculations.
There will of course be cost implications. Software and systems will need to be updated, such as for payroll, pensions and social security payments. Some might also argue that the timing is poor – businesses and individuals are already struggling to bounce back from the pandemic, they don’t need any further changes to contend with. Haven’t we managed fine for hundreds of years with a 5 April year-end anyway?
The subject is likely to spark much debate. The OTS will be publishing its report later on this summer to flag all the implications for discussion, and we will let you know as soon as we hear any further updates.