The Office of Tax Simplification (OTS) has announced that it is undertaking a review for potentially moving the tax year end date from 6 April to either 31 March or 31 December.
Tax Adviser, Helen Fraser takes a look at what any change in year end could mean.
The OTS is looking at analysing the benefits, costs and wider implications of a change of the date of the UK tax year, which will apply to individuals and will publish a report during the summer later this year. However, it is worth remembering that if any changes do come about as a result of this report, HMRC will undoubtedly be presented with some logistical challenges to change their systems and processes to enable this to happen; therefore, any changes will not happen overnight.
Changing the date to 31 March
If the date was to change to a 31 March year end, it would mean that in the year of transition, we would have a tax year that runs from 6 April to 31 March in the following year.
This would not make too much of a difference and might actually make things easier as the tax year end would be the end of a month.
Changing the date to 31 December
If the date was to change to a 31 December year end, it would mean that in the year of transition, we would have a short year of nine months as the tax year would run from 6 April to 31 December in the same year.
Many countries such as the US use 31 December as the tax year end, so a move to this date for the UK would mean that we would be in line with other countries. An individual who is required to prepare a tax return, for example, in both the UK and the US would mean that they are filing returns for the same period.
If we had a 31 December year end, would HMRC shorten the gap between the year end and the filing date so there is less time to prepare and file the returns? Currently we have a 10-month window to prepare the returns. Could HMRC use this as an opportunity to shorten the gap and more importantly bring the deadline for payment of tax forwards, this would also include the payments on account which are currently set as 31 January and 31 July?
For companies, having a 31 March or 31 December year end is very common, so by aligning the tax year end for individuals to the same date, this could actually make reporting easier.
We see a number of companies with a year end of 31 March, would we see these changing to a 31 December year end?
We know the government is thinking about Making Tax Digital for income tax in the future and there has been talk of potentially filing quarterly returns with individuals making tax payments on a quarterly basis. Could the above changes bring us one step closer to this? Tax-payers would need to ensure that their records are kept up to date, this would inevitably mean more time spent on being compliant.
The other key area which would be impacted is payroll. Currently we receive P60’s at the end of each tax year – being 5 April. Presumably, if a change of year end was made to 31 December, the year end reporting would also change to this date. How would banks and other finance providers change their systems so that they are able to accept end of year reports / tax return summaries, especially when dealing with mortgage applications – as we know this is often an area of challenge, even with the current system.
We will keep our eyes peeled for the announcement later in the summer!
If you have any questions or need further advice, please get in touch and our team of tax experts will be happy to help you.