Moving the tax year could save agents money

Moving the tax year from 5 April to 31 March would prove beneficially for estate agents and other businesses, and should be agreed as soon as possible, according to Blick Rothenberg.

The Office of Tax Simplification (OTS) last week 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 will outline the main additional broader issues, costs and benefits that would need to be considered if the end of the tax year were moved to 31 December.

Nimesh Shah, CEO at the tax and advisory firm, said: “The Office of Tax Simplification’s surprise proposal to consider moving the tax year end from 5 April to 31 March is a welcome move and should be endorsed.

“It makes complete sense to bring forward the tax year end date. Many businesses, companies and sole traders prepare their accounts to 31 March, and HMRC accept that a 31 March accounting year end can be used for filing a tax return. However, the majority of personal tax reporting needs to run to 5 April, which can cause administrative complications and transactions between 1 April – 5 April can sometimes be missed.

“The OTS notes that 31 March is the date which the UK government makes up its own accounts and references when certain corporate tax provisions apply – for example, the new corporate tax rates apply from 1 April.”

Nimesh Shah

Nimesh points out that the OTS report 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.

In a more dramatic move, the OTS is also considering whether the tax year should be moved to 31 December.  The change would align the UK with the majority of developed countries, who run their tax year to the calendar year, including the US, China, Germany, France, Italy and Spain.

Nimesh added: “If the government took forward either of the OTS’ proposals, it would mark a historic change from the 5 April date, which has been the UK tax year end since 1800.

“The origins of the UK’s tax year date back to the UK adopting the Gregorian calendar in the late 1500s.  Until 1752, the UK tax year started on 25 March (the old New Year’s Day) but as Britain aligned its calendar to the rest of Europe, and the Treasury not wanting to lose any tax revenue during that alignment year, it was decided to end the tax year on 4 April.  In 1800, the Treasury moved the start of the tax year again to 6 April because 1800 was not a leap year in the Gregorian calendar but was in the previous Julian system.”

“Whilst the OTS’ surprise proposal is very sensible, and arguably should have been tabled many years before, implementing such a change will come at a cost for HMRC and the taxpayer.

“Whilst the theory behind the change may make logical sense, the practicalities of making this important change to the UK tax system will be fundamental to its success.  Unfortunately, HMRC’s record at making even minor system changes does not provide much confidence that a simple change to the UK’s tax year date will be seamless.”

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