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Align tax year end with calendar to improve tax administration, say practitioners

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Published: 21 Jul 2021 Update History

More than three-quarters of attendees to ICAEW’s recent Wyman Symposium agreed that the UK’s tax year end should move from 5 April to 31 December after hearing about the potential benefits and practical implications of making the change.

ICAEW’s Tax Faculty hosted its annual Wyman Symposium on 13 July, with this year’s panel of experts discussing the possibility of moving the end of the UK’s tax year, an issue currently being examined by the Office for Tax Simplification and one with significant implications for HMRC’s review of the tax administration framework.

Norah Collender, Professional Tax Leader at Chartered Accountants Ireland (CAI); Jill Springbett, a Partner a MGR Weston Kay; Steve Wade, associate partner at EY; and Martin Wheatcroft, a specialist adviser on public finances, delivered compelling arguments for change either to a 31 March or 31 December tax year end.

While hearing that the transition to 31 December would be more challenging than to that of 31 March, attendees were swayed by the benefits of aligning the UK with other jurisdictions and opportunities to simplify tax administration. By the close of the online event 78% of attendees voted in favour of adopting a calendar tax year, compared with 49% at the start of the event.

The potential benefits

CAI’s Collender opened the debate sharing her experiences of Ireland’s transition from a 5 April tax year end to 31 December in 2002 before adopting the Euro. Despite the long working hours involved in assisting clients with the change, she spoke positively about the transition and the outcome including how taxpayers now have a greater interest in and understanding of the tax system.

“While 2002 will be forever etched in my memory as one of the toughest years in my professional life due to the tidal wave of new measures taking effect, looking back the transition to the calendar tax year went very smoothly,” she said. “There was buy-in from the clients, which I believe made all the difference and the Irish Revenue were very proactive. The transitional measures were well thought out and there was quick turnaround of unforeseen issues that invariably crop up.”

Collender argued that while the change to the calendar tax year had the greatest logistical impact on the self-assessed taxpayers, it’s had the most significant legacy impact on PAYE taxpayers.

“In my experience, the change to the calendar tax year was the catalyst in making the Irish tax system more accessible and easy to understand,” she said. “Taxpayers can identify the end of the year as the key point to gather up medical expenses, for example, and start thinking about making a tax claim for the year just finished. The tax calendar year made the tax system more relatable to PAYE taxpayers and therefor PAYE taxpayers in Ireland are very tax aware and, for the most part, can manage their own tax affairs.”

Wade, meanwhile, reflected on the experience with real time information (RTI) reporting for payroll and the many “temporary fixes” still in place. He argued that adopting a 31 December date offered the government a vital opportunity to remove many administrative issues, including when considering tax residence and double taxation relief between the UK and other jurisdictions that operate a calendar tax year.

“Moving to a December 31 would simplify the administration and cost for those individuals with continuing filing requirements in the UK and elsewhere,” he argued. “Often in these cases the amount apportioned to a particular tax year is not correct, but a best estimate. Aligning with the calendar year, means this would no longer an issue and those other returns that are filed on a calendar-year basis would also now be correct. Unintentional non-compliance would be reduced.”

Wade argued that the shift to a calendar tax year end would provide additional opportunities to update and modernise the PAYE system. “We should also take the opportunity to fix the 53-week problem,” he argued. “We could use the number of paydays in the year to determine the amount of personal allowance and the amount of each pay-band per pay period.”

The likely impacts

Looking to the technical difficulties of moving the tax year end, Wade argued that amending payroll to deal with a March or December year-end was not likely to provide a great technical problem for software developers. “The difficulty will remain what to add into payroll,” he said.

Reflecting on the potential impact on her firm, Springbett argued that while a 31 December date would greatly assist clients with international interests, moving to a 31 March date would be less disruptive for tax and accounting professionals, as well as the rest of the client base.

“A move to 31 March, through a transitional year shorted by five days, wouldn’t make much practical difference to workflows, assuming that payment and filing dates remain the same,” she confirmed. “In a number of ways, it should be easier having a 31 March year end, as many of the reports on which we rely are already done quarterly so no tiny adjustment to 5 April will be needed.”

A transition to a December year end, meanwhile, she argued would need the UK’s tax system to be adapted more radically and generate significantly more work for the profession during the transition.

“We advisers would probably also need to consider in each case whether to change the accounting year end of our self employed clients,” she said. “We could have some spectacular levels of work in the transition period dealing with the last 5 April year-end accounts and tax returns at the same time as needing to start work on the December year end reporting.”

Springbett argued that the transition to a calendar year end would take two or three years to bed-in, and suggests that, given the challenges posed by the coronavirus pandemic and the upcoming implementation of Making Tax Digital for income tax self assessment (MTD ITSA), it would be better to adopt 31 March year end initially with a change to 31 December planned for the longer term.

“Given the planning necessary to make a successful change to 31 December and the other matters we all need to focus on, including MTD itself, we cannot realistically move to a 31 December year end in time to get it and MTD working properly all at the same time,” she concluded.

“Once MTD is embedded and working as planned, with all transactions recorded electronically, it would be much more feasible to think about moving to 31 December. It would be much less disruptive to make a change at that time than if we did at present.”

Public finances

Wheatcroft shared his insights into the potential impact on public finances of moving tax revenues from one tax year to another.

Moving to a 31 March year end would shift around £1bn of tax revenues into the following year, he estimated, while a change to 31 December would result in approximately £90bn into the following year, but also £30bn of revenues from self assessment moving forward.

Within the context of a projected public debt of £2.4trn, Wheatcroft describes the impact on public finances as relatively small. “From a cash point of view on the public finances, there is no real obstacle of changing the tax year end,” he said.

However, he argued that a move to a calendar year end could have a wider, positive impact on public spending decisions.

“At the moment the public finance numbers produced by the government, which it uses to make decisions on a monthly basis, are full of estimation,” he said. “Making a change to the tax year end would not only hopefully improve the tax system, but it would hopefully improve the quality of the financial information produced, and better information makes better decisions.”

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