A recent survey conducted by BDO in the UK revealed that more than 90% of the businesses surveyed were in favour of a change to the tax year end to 31 December. The survey included 500 UK companies whose annual revenue is between GBP 10 million and GBP 300 million.

The UK tax year currently runs to 5 April, which is the tax year end for personal income tax. For corporation tax purposes the year end is 31 March. A change to the tax year would help companies to align their quarterly and annual accounting processes to the tax year. The change would also simplify the accounting process for British companies with subsidiaries abroad. Moving the tax year could simplify the wider tax system; but the change should be made carefully to ensure the adjustment does not burden businesses with additional compliance costs.

A 31 December year-end would lower compliance costs for UK businesses and for HMRC. The change would be particularly beneficial for UK companies with international business as the UK’s main trading partners use a 31 December tax year end. Calculations involving more than one country would therefore be simplified by an alignment of tax year ends.

The change to a 31 December tax year would require a transitional tax year that would be three months and five days shorter and would run from April 6 to December 31. This would mean that for many businesses tax would become payable sooner in that year. The change of tax year would involve various complexities including changes in the calculation of payroll and pension contributions.

The Office of Tax Simplification has been looking at the possibility of moving the tax year end. In June 2021 the OTS issued a review scoping document looking at the implications of the move and will publish the outcome of its deliberations later in 2021. They are considering the financial and administrative costs involved for the taxpayers and businesses, the practical issues for HMRC systems and the effect of the change on tax avoidance and evasion. In addition to tax simplification issues their review would also consider the implications of the change for other areas such as tax credits and benefits.

The review is looking mainly at moving the year end to 31 March, to align the tax year end with the UK’s financial year end, but the OTS is also considering the issues involved in a move to a 31 December year end. The OTS is also looking at the experience of other countries with their tax year end.