The Office of Tax Simplification (OTS) is exploring changing the end of the tax year from April 5 to either March 31 or the end of the calendar year.
The OTS has published a document today (June 4) setting out the scope of a review into the benefits, costs and wider implications of changing the date to the end of March.
It said March 31 was both the end of a calendar quarter and the nearest month end date to the end of the current tax year.
It was 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.
But the OTS will also explore running the tax year to December 31, similar to the US, France and Germany.
Should this option be pursued, the transitional year would be shortened by more than three months and run from April 6 to the following December 31.
The OTS said: “The UK’s tax year for individuals runs from April 6 to the following April 5. This is for historical reasons and has been the case for hundreds of years; the UK’s modern tax system and infrastructure have been developed around this date.
“By contrast, accounting systems used by businesses have been developed around month and quarter ends. Across businesses and internationally, it is common to account to a month end date. The UK financial year for government accounting and for companies runs from April 1 to March 31.
“While primarily addressing tax simplification issues, the review will also take account of the implications of any change in other areas, such as in relation to tax credits and benefits.”
In carrying out its review, the OTS said it will consider the implications for the Exchequer, the tax gap and compliance generally, in particular in relation to Income Tax, PAYE, National Insurance contributions, Capital Gains Tax and Inheritance Tax.
It will also consider the financial and administrative implications for taxpayers, employers and businesses and the practical implications for HMRC including the operation of its systems.
Furthermore it said it would reflect on implications for areas connected to individuals, such as partnerships and trusts and take account of relevant international experience.
Katharine Arthur, head of private client at Haysmacintyre, said: “A shift in date could pose a mammoth task for tax professionals, HMRC and members of the public alike, requiring a complete upheaval of the UK’s tax and payroll systems and software.
“The move to ‘Making Tax Digital’ in 2023 will almost certainly have been a key driver behind the decision to review the tax year end date: for self-employed people in particular, balancing different deadlines for VAT and income tax can add to any administrative pressures they face.
“Despite the transitional difficulties entailed with changing the dates, aligning the tax year end with the UK’s financial year end or with a quarter end would make considerable sense. For the self-employed and those filing overseas tax returns too, such a change could prove to be hugely beneficial in the long-term.”