Exploring a change to the UK tax year end date
OTS publishes analysis of the potential benefits, costs and implications of a change to the tax year.
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Details
Today (15 September 2021) the OTS has published a review setting out its analysis of the benefits, costs and wider implications of a change to the date of the end of the tax year for individuals.
The review considers the high level implications of moving the tax year end date to 31 December and a more detailed evaluation of the implications of a move to 31 March. It also considers potential short term practical measures to facilitate the launch of Making tax Digital for Income Tax.
Bill Dodwell, OTS Tax Director said:
It’s been stimulating to explore this issue, which has been of long-standing interest to many given the curiosity aroused by the UK’s use of a tax year running from 6 April to 5 April. Despite our having carried out our review over a short period, many people have got in touch to share their insights and experience. A clear majority of those responding to us thought that the UK should adopt a different year end - but there was a range of views on whether to move to 31 December or to 31 March. This has been borne out by a range of surveys.
This report presents information and analysis to inform evaluation and debate about the implications of any potential change and its timing. It does not aim to make a specific recommendation about whether the tax year should change.
There would be clear advantages from having a different tax year end date, but as the transitional costs and impacts are significant, it would require detailed advance planning. If government were to make a change, it would also be important to ensure the timing did not derail existing change programmes such as work on the Single Customer Account. So, while we do not consider such a change should take place in the immediate future, it is not too early to start some long-term planning if the government were to consider taking this forward.
In the short-term, we 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, to facilitate Making Tax Digital for Income Tax.
Summary findings
There are clear benefits in adopting a tax year which is either aligned with the calendar year or with a calendar month-end, especially given the increasing automation, internet-enabled commerce and digitisation of financial information and accounting systems generally.
The costs of change are significant, both in terms of the financial cost and the opportunity cost. Whether moving to 31 March or 31 December, the work involved would consume government and private sector resources and make it much harder to implement other changes at the same time. A move to 31 December could also require changing the UK’s financial year.
The review did not aim to make a specific recommendation about whether such a change should be made. Instead, the report presents information and analysis about the issues involved to inform evaluation of any potential change, and its timing.
A tax year aligned to the calendar year would be the natural, simplest and easiest approach for everyone to understand. It would align with the approach in many other countries and support improvements in the use of international data to help taxpayers in fulfilling their obligations. It would also help individuals who move internationally (and, where relevant, their employers), or who have overseas income.
Moving to 31 March would also be much more understandable, align with the UK’s financial year, and assist taxpayers who prepare business accounts or report income from investments.
The systems impacts of such a change, for government and the private sector, could be comparable with those for a change to 31 December, but the overall scale of what would be involved in a change to 31 March would be lower.
The OTS considers that any change would be best carried out after major projects such as the Single Customer Account have been completed. It would in any case not be feasible to change the tax year end date before the scheduled 5 April 2023 start date of Making Tax Digital for Income Tax.
While the OTS does not consider such a change should take place in the immediate future, the OTS recommends that in the short-term the government and HMRC pursue ways to formalise arrangements to allow (or even require) taxpayers to use a 31 March cut off to stand in for 5 April in respect of the calculation of profits from self-employment and from property income, ahead of the implementation of Making Tax Digital for Income Tax.
Notes for editors
The OTS initiated this review in June, in the context of HMRC’s call for evidence on reforming the tax administration framework.
This report will be one of the areas of the OTS’s recent work covered in the webinar the OTS is running on 15 September.
During the course of the review, in July 2021, HMRC issued a consultation document on basis period reform which, among other issues, also included discussion of the potential for treating 31 March and 5 April accounting dates as equivalent in relation to profits from self-employment.
The OTS is the independent adviser to government on tax simplification, challenging tax complexity to help all users of the tax system; it does not implement changes - these are a matter for government and for Parliament.
The OTS works to improve the experience of all who interact with the tax system. It aims to reduce the administrative burden - which is what people encounter in practice - as well as simplifying the rules. Simplification of the technical and administrative aspects of tax are each important, both to taxpayers and HMRC.
Press Enquiries only please contact Julie Gillespie, OTS Press Officer 03000 585028