Moving the Tax Year Dates?

Ever since I have been in the payroll profession, the Income Tax year has started on 06 April of one calendar year and finished on 05 April of the following.

It’s all to do with the measurement of time.

Up until 1582, the calendar year had been split neatly into months with the year estimated to be exactly 365.25 days via the Julian Calendar (named after Julius Caesar).  However, this was longer than the tropical or solar calendar year which is estimated to be approximately 365.2425 days long (365 days, 5 hours, 48 minutes, 45 seconds).  So, in October 1582 Pope Gregory XIII amended the Julian Calendar with the introduction of the Gregorian Calendar. 

This was widely adopted in Europe; however, the United Kingdom (UK) did not accept this calendar until 1752.  By that time, the UK accepted that it was 11 days out of alignment with the rest of Europe.  So, September 1752 jumped from 02 September to 14 September, with 11 days of time lost but, effectively, making up time with the rest of Europe.

The traditional start of the tax year was moved from 25 March to 05 April.  25 March is another historical date which was referred to as a ‘quarter day’ – the day of the calendar quarter when debts and accounts had to be settled in full.

In 1800, the start of the tax year was moved forward by another one day, hence the reason that the UK tax year starts on 06 April each year.

Very complicated, very historical but interesting none the less.

In many countries, particularly our neighbours in Europe, the tax year start and end is aligned to the calendar year start and end, i.e. 01 January to 31 December.  It has not always been this way, for example:

• In Italy, the tax year was 01 July to 30 June before moving to alignment with the calendar year in 1965
• In Ireland, the tax started on 06 April and finished on 05 April until 2002 when it started on 01 January. Tax year 2001 was, therefore, only for the period 06 April to 31 December 2001

There is also another consideration and that is the Government’s accounting fiscal year.  Often, these are aligned to the start and end of the tax year, though the UK has a fiscal year running 01 April to 31 March for the purposes of their financial statements.

Just because the UK tax year is out of line with most other countries and the UK Government’s own fiscal year, does not mean it has to stay that way.  Fast forward to the Office of Tax Simplification’s paper ‘Review of potential for moving the tax year end date: Scoping document’ from 04 June 2021.  This is a ‘high level analysis of the benefits, costs and wider implications of a change in the date of the end of the UK tax year’ and will report in the Summer of 2021.  It only considers 2 dates for changing the tax year end:

This will be ‘the focus’ and a change to this date means alignment with the UK Government’s fiscal year and, practically, shortening the first tax year in operation by 5 days.  Important is the word ‘focus’ that indicates that this is the preferred date already.

‘In addition’, 31 December will be considered which would bring the UK into line with many other countries.  Perhaps, says the paper, this has ‘broader issues’.  For this first year of operation, this would mean that the tax year would be shortened by 3 months and 5 days.

This is not a consultation or a call for views.  

Instead, the OTS says that it will engage with a number of bodies including HMRC.  It says that they will conduct this work in the context of HMRC’s current call for evidence on reforming the tax administration framework.  This closes on 13 July 2021 and responses or queries about this can be sent to [email protected].