Why is the OTS looking at changing the tax year?
Until 1752, the tax year in Great Britain started on 25 March, old New Year’s Day. The switch was then made from the Julian calendar to the Gregorian calendar (catching up on nearly two centuries of leap years). In order to ensure no loss of tax revenue, the Treasury decided that the taxation year which started on 25 March 1752 would be of the usual length (365 days) and therefore it would end on 4 April, the following tax year beginning on 5 April.
On 4 June, the Office of Tax Simplification was instructed to simplify this state of affairs by “undertaking a high-level exploration and analysis of the benefits, costs and wider implications of a change in the date of the end of the UK tax year for individuals”. The review will primarily focus on the impact of switching to a 31 March year end, but will also consider the possibility of 31 December, which would align UK into line with many other countries (and also make life even simpler).
The OTS review will:
- “Consider the implications for the Exchequer, the tax gap and compliance generally, in particular in relation to Income Tax, PAYE, National Insurance Contributions, Capital Gains Tax and Inheritance Tax
- Consider the financial and administrative implications for taxpayers, employers and businesses
- Consider the practical implications for HMRC including the operation of their systems
- Consider interactions with other government departments and devolved administrations
- Reflect on implications for areas connected to individuals, such as partnerships and trusts”
What is perhaps slightly surprising is that the OTS has not also been asked to consider the concept of moving businesses onto a common basis period, as was suggested in the “timely payment” paper published on 23 March. Perhaps making two changes at the same time would be a step too far – or perhaps the intention is to do this, but in two stages?*The views expressed are the author’s and not ICAEW’s.