Currently UK tax years start on 6 April annually, and run until 5 April the following year. At first glance it seems illogical given that the dates are not even aligned with the end of a month, let alone the end of a calendar year. For this reason, the Office of Tax Simplification (OTS) initiated a review on the benefits, costs and wider implications of changing the tax date to either 31 March or 31 December, and their conclusions have now been published.
The OTS found that there are clear benefits in adopting a tax year which is either aligned with the calendar year or with a calendar month-end. A more logical tax cut-off date would enable different systems to align with tax requirements, and given the increasing automation and digitisation of financial information the greater the need for alignment. However, the transitional costs and impacts are significant, and changing the tax year would require detailed advance planning.
While the OTS does not consider such a change should take place in the immediate future (due to other significant projects such as Making Tax Digital), it is not too early to start planning for a change. The OTS found varying views regarding whether the new tax year date should be 31 March or 31 December and they have not sought to recommend either.
The forthcoming Making Tax Digital for Income Tax programme requires self-employed people and landlords to submit quarterly reports of their income to HMRC, and presumably these will be scheduled for calendar month-ends rather than 5 April and subsequent quarters. Therefore, OTS recommend government and HMRC focus on arrangements to allow self-employed taxpayers and individual landlords to use 31 March in place of 5 April when reporting their income for Making Tax Digital for Income Tax.
We have previously reported that the considerations to change the tax year have been purely suggested in order to facilitate Making Tax Digital, and not actually as a simplification for self-employed people. Whilst the OTS report makes many interesting points, it doesn’t change our initial conclusion.