Do you know why the UK tax year begins in April? Or why we’ve never made a tax year change to 1st January, which would align us with most other countries?
As is often the case, the reason is down to the quirks of history. Back in 1582, Pope Gregory XIII decided we should all ditch the Julian Calendar, which had been in use since 42AD. It was an accurate calendar – but not quite accurate enough. By the 16th century, it was lagging 10 days behind the solar calendar.
So Gregory decreed a shift to a new calendar, which now bears his name – the Gregorian Calendar. England, which by this time had broken from Rome, flatly ignored him.
As a result, England (later Great Britain) stuck with the Julian Calendar, leaving the rest of Europe to do their own thing. And so things remained until 1752. By this time, the Julian Calendar had dropped behind the solar calendar by 11 days. Britain decided to finally make the switch to the Gregorian system.
The first tax year change
Before 1752, the tax year in Britain began on 25th March. This used to be celebrated as New Year’s Day. However, the authorities didn’t want to lose tax revenue by reducing the length of the tax year. So the tax year remained at 365 days and ended on 4th April.
For the next 48 years, the new tax year began on 5th April. However, 1800 would have been a leap year in the old Julian Calendar, but wasn’t in the Gregorian one. So the beginning of the tax year was nudged forward to 6th April – where it has remained ever since.
Time to change the tax year again?
Fast forward 221 years to 15th September 2021, just a week ago. On that date, the Office of Tax Simplification (OTS) published a policy paper called (somewhat uninspiringly) Tax year end date report.
In essence, the new report examines the implications of moving the tax year end to either 31st December or 31st March. The reason? It is interested in ways of making it easier to introduce Making Tax Digital.
Interestingly, the report did not aim make a specific recommendation about whether to switch to either of the above dates. However, OTS does say:
“In the short-term, we recommend government and HMRC focus on arrangements to allow self-employed taxpayers and individual landlords to use 31 March in place of 5 April when reporting their income, to facilitate Making Tax Digital for Income Tax.”
The OTS believes there are clear benefits to a tax year change. Changing to an end date of 31st December would align the UK with Europe, North America, South Korea, Brazil and most of the G20. This is important in an age of globalisation.
That said, OTS believes there are good reasons for making the simpler change to 31st March. It notes that it’s easier to account to a month or quarter end, and that this reflects the way that most people run their businesses. Other factors, such as monthly bank statements, would thus make accounting easier.
Will the change happen?
It’s important to note the OTS recommendations are just that – recommendations. They have no force in law. It is still up to the government to decide whether to implement any of them.
However, a less complex tax year would certainly make it easier to implement Making Tax Digital for Income Tax. However, OTS does warn about timing:
“If government were to make a change, it would also be important to ensure the timing did not derail existing change programmes such as work on the Single Customer Account. So, while we do not consider such a change should take place in the immediate future, it is not too early to start some long-term planning if the government were to consider taking this forward.”
Changing the tax year date would involve a lot of forethought and would be expensive in the short term. OTS points out that changing to 31st December would be more complex and costly than switching to 31st March. Based on that, our best guess is that the tax year end is likely to change to 31st March – but it’s impossible to predict exactly when. One thing’s for sure, though: the Pope still won’t get a say this time round!
About Ben Locker
Ben Locker is a copywriter who specialises in business-to-business marketing, writing about everything from software and accountancy to construction and power tools. He co-founded the Professional Copywriters’ Network, the UK’s association for commercial writers, and is named in Direct Marketing Association research as ‘one of the copywriters who copywriters rate’.