At the beginning of June, the OTS (Office of Tax Simplification) published a document setting out the scope of a new high-level exploration of the benefits, costs and wider implications of changing the date of the end of the tax year for individuals. The review will focus on the implications of moving the tax year end date from 5 April to 31 March.
This is both the end of a calendar quarter and the nearest month end date to the end of the current tax year. It is also the UK financial year end date, to which the UK government makes up its own accounts, and by reference to which corporation tax rates apply.
As well as considering the implications of changing the tax year end to 31 March, the review will also consider potential alternative approaches to addressing practical issues connected with the UK’s tax year running to 5 April.
In addition, the OTS is also considering the implications of the end of the tax year moving to 31 December. This would align the UK with other major economies around the world, including the US and Germany. Ireland moved its year end from 5 April to 31 December nearly 20 years ago.
But why does the UK’s tax year end on 5 April in any case? The answer lies many centuries ago.
In England and Ireland, the New Year used to begin on 25 March or ‘Lady Day’. Along with Midsummer on 24 June, Michaelmas on 29 September and with Christmas Day on 25 December, these were referred to as ‘quarter days’ and were traditionally when debts and rents were required to be settled. In addition to being the New Year, Lady Day was also regarded as the beginning of the financial year.
Until 1582, Europe relied on a calendar established by Julius Caesar, the ‘Julian’ calendar. Then Pope Gregory XIII called for Europe to move over to the Gregorian calendar. As it was not a Roman Catholic country, England stayed with the Julian calendar until 1752, by which point we were 11 days out of alignment with the rest of Europe!
To sort this out, the decision was made to cut 11 days from September that year, meaning 2 September was followed by 14 September – a bit grim for those people with a birthday between those two dates. In 1753 the last day of the tax year was moved to 4 April and, in 1800, it was shifted to 5 April to make up for continued differences in the two calendars.
Now, 221 years later, this date could well change but, whatever decision is taken, it won’t be an easy transition to make.
The OTS is the independent adviser to government on tax simplification, challenging tax complexity to help all users of the tax system, although it does not implement changes. The organisation works to improve the experience of all who interact with the tax system. It aims to reduce the administrative burden, as well as simplifying the rules.
The OTS will publish a report in the summer of its findings.
For help with your tax contact our chartered accountants here at Charter Tax.
