On 15 September 2021 the Office for Tax Simplification (OTS) issued a report outlining its views on the advantages and potential costs of moving the tax year end for individuals in the UK.
The review looks in detail at the possibility of moving the tax year end from 5 April to 31 March, and looks in general terms at issues involved in moving the year end to 31 December.
The report also looks at possible short term practical measures to facilitate the launch of Making Tax Digital for Income Tax. For individuals in business or those with rental income it would be simpler to prepare their accounting records to 31 March rather than to the current year end date of 5 April.
Changing to a 31 December tax year end
The review sets out the relevant information without making any specific recommendations on making a change. The analysis included in the report is intended to support any government assessment of the benefits and timing of a potential change.
The report notes the advantages of adopting a tax year which is either aligned with the end of the calendar year or with the end of a calendar month. These advantages would be enhanced by the trends to increasing automation, internet-enabled commerce and digitisation of accounting systems.
There would also be significant costs of changing the year end date. The work required to change the date would take up a large amount of government and private sector resources and consequently it would be difficult to introduce other changes at the same time. In the case of a change to 31 December the UK’s financial year would also need to change.
If the tax year is moved to coincide with the calendar year this would help to align the UK tax system with the approach used in a number of other countries and would make it easier to use international data to assist taxpayers. Individuals moving across borders and their employers would also find compliance easier.
Changing to a 31 March tax year end
A change of the tax year end to 31 March would align the date with the UK’s financial year and facilitate compliance for taxpayers preparing business accounts or reporting investment income. The impact of the change would be on a relatively smaller scale than a change to 31 December.
The OTS considers that the tax year end should not be changed before the scheduled commencement of Making Tax Digital for Income Tax on 5 April 2023. In the short-term the government could look at ways to allow taxpayers to use a 31 March cut off instead of 5 April in calculating profits from self-employment and property income.