Time to change Year End Tax
The Office of Tax Simplification (OTS) has been asked to review the implications of moving the top of the tax year from 5 April to 31 March.
There are other ways to affect the practicalities of the UK’s slightly less conventional month end, but within the context of HMRC’s involve evidence on reforming the tax administration framework, and with the increasing pace of change within the digital sphere, if we are ever getting to change, then the time to debate it’s now.
The OTS also will be looking more generally at a move for the tax year-end to 31 December.
Historical quirk
Tax lecturers search for stories to interest their audiences and therefore the tale which never fails to deliver is why 5 April is the end of the UK’s tax year. once we moved from Annunciation, on 25 March, back in 1752 it didn’t go well and lots of peasants revolted over the times they lost, but at a minimum we stabilized our seasons.
This time the drivers are more associated with digital and possibly the necessity for greater alignment with business practice and therefore the remainder of the planet.
Push to Digital
Regardless of the challenges faced by those with poor broadband or those perfectly happy to write down up their accounting records only periodically, the united kingdom economy is moving to digital fast.
HMRC looks increasingly sort of a processing organization. The Making Tax Digital (MTD) for VAT requirements have certainly forced many to manoeuvre accounting software before they could have intended. The Covid pandemic has accelerated this pace of change.
HMRC has published three papers that time to significant areas of change for the united kingdom tax system:
Building a trusted, modern tax administration system
Tax administration framework: Supporting a 21st-century legal system
Timely payment
Why does 5 April tax year-end matter?
Let us consider the principles already drafted. The mandate of MTD for tax self-assessment (MTD ITSA) is near and can require reporting supported by the digital record of when transactions happen. it might help to be ready to align the quarterly reporting obligations for VAT with those for tax.
It would also help to align them with the opposite different sources of income to be reported for tax. Otherwise, we could see a private having multiples of the headlined ‘four’ quarterly reports to form annually.
For example:
Income tax is charged on property income supported tax years, 6 April to five April, so quarterly reports will presumably be made for quarters to the 5th of every month instead of to month ends. MTD ITSA does allow reports to be submitted on any date within a month.
Business income is taxed either on the tax-adjusted accounting profits of the accounting period ending within the tax year or, as many simpler businesses prefer, on the tax-adjusted profits of the amount of 6 April to five April. Quarterly reports will presumably slot in with this.
If the business is VAT registered, it’ll make VAT returns which must be prepared by month ends. A VAT registered business will therefore presumably choose a month-end accounting date.
The consequences of this are that a VAT-registered sole trader with a buy-to-let property would be making MTD reports on a minimum of eight occasions annually.
The solution?
We could:
Reinstate the rule allowing property income to be taxed on account year-end basis so those MTD reports would align with business reports, or
Pretend that 31 March and 5 April are an equivalent thing, or
Change the top of the tax year to align with a month-end.
Any change to the tax year would necessarily even have to think about the complexity and costs of change for payroll and payroll software. On the plus side, we could take the chance to affect issues like 53-week PAYE code problems.
Any change for tax may additionally mean watching pensions and Social Security payments too. But aren’t a number of those in need of simplifying too?
The arguments for change
These include:
Simplification opportunities
MTD reporting alignment
Third-party pre-population is easier to realize with month ends
International competitiveness – cross-border transactions and reporting, and double tax relief calculations, would be simpler with a civil year-end in line with most of the remainder of the planet. The US, France, Germany, Spain, Ireland, and Jersey all use calendar tax years.
Reduced administration both for business and for people
Help with the digitalization of the economy and therefore the legal system
Arguments against change:
Timing: we’ve had a terrible few years and lots of accountants and their clients are already exhausted, so we should always avoid unnecessary changes just
Cost: it’ll be expensive economically, for all the systems changes and can take tons of your time
