The Office of Tax Simplification (“OTS”) have published an analysis of the potential benefits, costs, and implications to a change of the tax year.
The in-depth review has looked at the potential ramifications of moving the tax year-end to 31st December or 31st March. The idea of a move to 31st March has been examined much more closely than the former.
It has long been a curious aspect of British life that the tax year runs from 6th April to 5th April. A range of surveys indicated that the public would prefer a change to the tax year-end, however, opinions differed on the actual date.
If any such change was actioned, the costs and impact would be significant.
The move to 31st March would make a lot of sense in that it would continue to align with the UK’s financial year. It would also be beneficial to taxpayers who prepare business accounts or report income from investments.
Any change to the tax year-end would incur massive financial and logistical costs, but a move to 31st March would ensure that these ramifications were significantly lower than the alternative date of 31st December which has also been posed.
If the tax year was aligned to the calendar year, to conclude on 31st December, this would be the simplest and most natural approach that everyone should understand. It is the approach used by many other countries and would usher in improvements in the use of international data to help taxpayers fulfill their obligations. It would also help individuals who move internationally (and, where relevant, their employers), or who have overseas income.
However, this approach would require also changing the UK’s financial year in its entirety. The impacts of these changes would far outweigh those brought about by changing to 31st March and would be an overall massive undertaking.
Will it ever happen?
While the OTS has indicated that such changes would be possible and perhaps even welcomed by the public and those in financial services, it is highly unlikely that this will happen in the immediate future.
If such a change was to happen, it would be several years away and would require a great deal of planning to implement smoothly. For instance, it is not feasible that this could happen before the scheduled 5th April 2023 start date of Making Tax Digital for Income Tax.
In summary, it is not likely that the changes will happen any time soon. The Chancellor Rishi Sunak has already warned that any such adjustments would cost “billions”. However, it is certainly something that the government are considering since the publication of OTS’ review and is an issue to keep an eye on as a taxpayer.
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