Why does the British Tax Year end on 5 April?

You have probably seen adverts recently to use up your tax allowances by today (5 April). But have you ever wondered why the tax year in the United Kingdom starts each year on 6 April?

It all started with the Romans

I kid you not, to answer this question we have to go back over 2,000 years to a botched reform by Julius Caesar of the old Roman calendar in the year 45 BC.

The previous Roman calendar was unwieldy. It had twelve months that added up to just 355 days, which - as any school child will tell you - is too short for a solar year (i.e. the time it takes the earth to go once around the sun). To avoid the months sliding around the seasons, the Romans inserted an extra month (called an "intercalary month") every now and then. This was not only clunky, but was also open to manipulation because politicians could choose when to add the extra month - so they were known to lengthen years when allies held office, and shorten those of their opponents.

The Julian calendar

A better calendar of 365 days was in use at the time in Egypt. Caesar seems to have learned about this whilst fighting in the Ptolemaic Wars in Egypt, during which time he met with Egyptian astronomers as well as Queen Cleopatra.

Upon his return to Rome, he summoned the best mathematicians of his time, who came up with his new Julian calendar. This had a form that's familiar to us: twelve months of 30 or 31 days, with 28 days in February plus a leap year every fourth year when February has 29 days.

This new calendar improved not on the Roman one that preceded it, but also the Egyptian calendar of 365 days. The leap year concept gave the calendar an average length of 365? days.

The new calendar still gains, just very slowly

The actual length of a solar year is around 365.2422 days. Even in Roman times they knew it was slightly below the 365? days of the Julian calendar, but they ignored this small difference, presumably because it seemed immaterial. It works out at a gain of one day every 129 years (roughly three days every 400 years).

Over the course of centuries, however, this gradually became noticeable. By the sixteenth century the drift amounted to ten days. This was not enough to drag entire seasons out of alignment, and was not a concern for most people. However it was an acute problem for the church.

The church gets involved

The church cared deeply about celebrating Easter on the anniversary of Jesus's resurrection. The gospels point to this being the third day after the Jewish Passover feast. In the First Council of Nicaea (325 AD), as Christianity was being regularised, a calculation was adopted that pinned Easter to the Julian calendar rather than the Jewish calendar, making it the first Sunday on or after 21 March (the spring equinox).

By the early modern era, with increasing astronomical knowledge, it was obvious that Easter had moved relative to the equinox, and hence also the anniversary of the resurrection. For the church this was not just an oddity, it was important doctrine. The Catholic church commissioned a review in the 1500s, which led to the design of a new calendar that removed the drift. The fix came by removing three leap years out of every 400 years (specifically, century years that aren't divisible by 400 - e.g. 1700, 1800, 1900 but not 2000).

The new calendar was called the Gregorian Calendar, named after Pope Gregory XIII, and was adopted in 1582 by removing the ten days that had been gained and introducing the new calendar from that date onward.

Great Britain catches up

The Gregorian calendar was mostly adopted in 1582 in Catholic countries, where the pope's authority was recognised by the state. Many Protestant countries - including both England and Scotland - refused to comply on principle. This led to nearly two centuries in which there were not only different dates for Easter, but different dates for everything on each side of the Channel.

Eventually mathematical fact got the better of religious dogmatism. Great Britain (created in 1707 by the union of England and Scotland) accepted the Gregorian Calendar in 1752, by which time it had gained an additional day via the Julian calendar and was running 11 days fast.

The unusual history of the English New Year

So, what has this got to do with the tax year starting on 6 April? There is another historical quirk at play here. Until the calendar was changed, the legal new year in England was actually 25 March not 1 January as we have today.

The roots of the 25 March new year come from the tradition of breaking the year into four quarters, when taxes were due and contracts were settled. This system made sense in the Middle Ages: quarters were frequent enough to keep the exchequer and the economy active, but not so frequent as to demand too much movement or liquidity in a largely agricultural society.

The four Quarter Days are Lady Day (25 March), Midsummer Day (24 June), Michaelmas (29 September) and Christmas (25 December). Of these, Lady Day (25 March) was the most convenient for annual contracts (falling outside ploughing, harvesting and dead winter seasons). Most annual tenancies and crop contracts, therefore, were came due on 25 March. Along with this came annual taxes, and from the late Norman era onwards this was the official new year.

Before you ask, yes this does mean that Richard I (the "Lionheart") was assassinated by a shot from a crossbow on 24 March 1198 and died thirteen days later on 6 April 1199.

Introducing the "New Style" Calendar

The New Style Calendar was adopted on 1 January 1752 in Great Britain and the British Empire (which included, at the time, the future United States) via an Act of Parliament called the Calendar (New Style) Act 1750. The New Style Calendar is identical to the Gregorian Calendar, but was described using a Church of England method rather than the Catholic Church's method of coming up with the same answer. Followers of current affairs may notice that the "rule-setter not rule-taker" mindset is pervasive in British history.

The same Act of Parliament eliminated the eleven day gain that had accumulated over the centuries. It did this by skipping eleven days as a one-off fix. The day after Wednesday 2 September 1752 was Thursday 14 September 1752.

Most people treated this as a curiosity, but in accounting circles it threw up some real challenges. Why should taxes that fall annually, such as the Land Tax, be payable on a period that lasted just 354 days? Why should bills be settled, or labourers released from contract, eleven days early?

The solution was to push back the settlement dates by eleven days. This pushed the accounting period out from 25 March to end on 5 April 1753. The tax year in Britain has remained the same ever since, with taxes settled up to 5 April for one year, and the new year beginning on 6 April the following day.

So ... use your 2023-24 ISA allowances today, or lose them forever!