The Office of Tax Simplification has highlighted the benefits of a tax year aligned with the calendar year or a month-end. While cautioning against an immediate change the report suggests that it is not too early to start some long-term planning.
The Office of Tax Simplification (OTS) has published the findings of its review into the costs and benefits of moving the end of the tax year away from 5 April. While the OTS did not aim to make a specific recommendation about whether the tax year should change, the review is broadly supportive of further consideration by government and the start of long-term planning.
Despite the review being carried out over just two months there was a high level of engagement and a clear majority of those responding to the OTS thought that the UK should adopt a different year end. There were, however, a range of views on whether that move should be to 31 December or to 31 March.
The benefits highlighted by the review include a tax system that would be more easily understood by the general population and one that would provide simplification for those with overseas income, enabling better use of internationally exchanged tax-related data. To achieve the second benefit, a move to 31 December would be preferable.
The OTS notes, however, that the costs of moving the year end are significant for both the public and private sectors and that it would be difficult to implement other major changes to the tax system at the same time.
Anita Monteith, ICAEW’s Tax Technical Lead and Senior Policy Adviser, welcomed the review: “The OTS report makes a very valuable contribution to the debate by exploring the benefits and costs of a change to the tax year,” she said.
“ICAEW agrees with the OTS’ conclusion that an immediate change in advance of Making Tax Digital Income Tax Self Assessment (MTD ITSA) in April 2023 is not feasible. However, in its webinar accompanying the publication of this report, a 10-year planning horizon was mentioned so perhaps this report’s findings will encourage ministers to keep a possible change to the end of the tax year in their longer-term vision.
The one specific recommendation that the review makes is in relation to MTD ITSA, stating: “The government and HMRC should 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 MTD ITSA.”
Summary of the findings:
The review did not aim to make a specific recommendation about whether 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. Its findings include:
- Identified benefits in adopting a tax year which is aligned with the calendar year or a calendar month-end, given increasing automation and digitalisation of financial information.
- The costs of change would be significant and 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.
- 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 international exchanges of data between tax authorities. It would also help individuals who move internationally (and, where relevant, their employers), or who have overseas income.
- As a calendar month end, 31 March would be much more understandable to the general population than 5 April. It would align with the UK’s financial year and assist taxpayers who prepare business accounts.
- The impacts of a change to 31 March, 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 would be lower.
- Any change would be better 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 MTD ITSA.
- While the OTS does not consider a change to the tax year should take place in the immediate future, it recommends that in the short-term the government and HMRC pursue ways to formally enable 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 MTD ITSA.
- The report notes that the position of construction industry sub-contractors would need to be considered if 31 March rather than 5 April were to be required.
Read the full report: “The UK tax end year date: exploring the potential for change”.
Watch the recording of the OTS webinar held on 15 September discussing the report.
- Align tax year end with calendar to improve tax administration (Tax News, 21 July 2021)
- Lessons from Ireland on changing the tax year (Tax News, 21 April 2021)
- It's time to take a look at year end (Tax News, 23 February 2021)
Building a better UK tax system
As HMRC embarks on a 10-year review of tax administration, ICAEW examines the potential opportunities and challenges to reforming the UK's tax system to be fit for a digital future.
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