An Office of Tax Simplification review on moving the tax year from 5th April–31st March makes complete sense. The government and HM Revenue & Customs should press ahead with the implementation as soon as possible, say leading tax and advisory firm Blick Rothenberg.
Nimesh Shah, CEO at the firm, said: ‘Although the change only involves five days, there will be a need for careful consideration given to HMRC’s systems, which are presently hardwired to 5th April. There will be an administrative cost for the government, and HMRC needs to be confident that it can deliver a technological change in the timeframe agreed, which is proposed as April 2023 to coincide with the Making Tax Digital timeline.’
‘If this change goes ahead, HMRC must act quickly to move ahead with the system updates, but HMRC will also need to do better with their communication to affected firms – banks, investment managers, estate agents, to name a few, will need to update their own systems, at their own time and cost, so that they can provide individual taxpayers with the correct information for the new tax year-end. It may only be five days but could require a complete re-coding of legacy systems and processes.’
He added: ‘HMRC are facing a lot of change over the next 18 months, with the introduction of Making Tax Digital from April 2023; last week’s announcements about the new Health & Social Care Levy will also require another significant system change, as the government have insisted this tax should be shown as a separate line item on people’s payslips. There is already a concern that HMRC will not have the resource or the time to implement these changes effectively, without adding a further change to the equation.’
In June, a short and surprise consultation by the OTS proposed moving the UK’s unique 5th April tax year, which has been the UK tax year end since 1800. The OTS did consider whether the tax year should be moved to 31st December to align most developed countries, who run their tax year to the calendar year, including the US, China, Germany, France, Italy, and Spain. However, that move seems to be a step too far, and the OTS appear to favour only the five-day alteration.
Nimesh said: ‘It makes complete sense to change the tax year-end to 31st March. Many businesses, companies and sole traders prepare their accounts for 31st March, and HMRC accepts that a 31st March accounting year-end can be used for filing a personal tax return.’
‘However, most personal tax reporting needs to run to 5th April, which can cause administrative complications and transactions between 1st April–5th April can sometimes be missed. The OTS believe that changing the tax year-end could have the effect of reducing administrative errors when completing tax returns and help to reduce the ‘tax gap’ – the difference between the tax that the Treasury should have collected and what is actually received.’
Nimesh concluded: ‘Separate to this proposal from OTS, HMRC have a separate consultation on ‘basis period reform’ which closed at the end of August. This HMRC consultation is allegedly centred around simplifying the tax rules to make all unincorporated businesses follow the tax year for their accounting year. If this change were introduced, it would again effect from April to coincide with Making Tax Digital. I may be reading too much into this, but it seems that the OTS and HMRC have lined themselves to make all these changes fit with Making Tax Digital from April 2023.’