Consideration of moving the UK tax year end: the next target in the scope of OTS
Monday, 28 June 2021
The OTS (Office of Tax Simplification), the independent advisors which provide advice to the government on simplifying the UK tax system, are undertaking a review of changing the UK’s tax year end date for individuals, and entities largely concerned with individuals such as partnerships and trusts. The UK is unique in that its tax year runs, as we know, from 6 April to 5 April the following year, having done so for centuries. This would be a high-level review which, whilst primarily focussing on simplification, will also consider wider issues such as any financial and administrative burden on taxpayers and businesses, as well for HMRC.
The main focus would be on whether to move the year end to 31 March, to align with the UK’s financial year used by the UK Government. However, they will also explore other options such as whether to align to the calendar year.
So, what are the potential benefits of moving the year end?
As above, moving the year end to 31 March would coincide with the financial year. Moreover, most businesses typically have end of month and quarter ending reporting systems. This is same for many international businesses. This could also harmonise many deadlines and the complexities which emanate from the current system.
There may also be benefits for those who have overseas income to report on their UK returns, or have overseas tax returns to file. Where the tax year is aligned to the calendar year this would match other major countries such as the US, France and Germany. By doing so, reporting overseas income may be materially easier and reduce delays in obtaining records for the purpose of preparing returns.
How would this work?
There may be a transitional year, whereby allowances and reliefs etc. may be prorated. Where, say, the tax year is aligned to the calendar year this may become a 9-month period. Consequently, the reporting deadline would likely be altered too, potentially moving from 31 January to 31 October. Whilst this may make it easier for tax professionals to complete their Christmas shop, it may create other challenges for those affected by day counting rules, such as non-residents, averaging of profits for farmers, reduced profits for shorter accounting periods, amongst many others.
It could also have other major implications for those within the benefits system, with potential added costs for the government ensuring nobody is adversely affected.
Have similar changes been done elsewhere?
In 2002, Ireland altered their tax systems from 6 April to 31 December. Whilst part of these changes were in view of the potential benefits considered above, it was also part of a much wider change involving the adoption of the Euro and to align with other Eurogroup countries. Many considered this a successful change, but many would question if such a change would have occurred if not for the other major changes required.
What happens next?
OTS will complete their review and publish a report. We'll keep you updated on any proposed changes.