19 Nov 2021
Fiscal year end potential changes from the Office of Tax Simplification?
The pace of change in tax reform in quickening. In the post-Budget review of taxation administration, published on 23rd March, the Chancellor suggested that that “more timely payment” of businesses taxes, particularly by the self-employed, would be desirable. As part of this, and in order to make tax less complicated, it was also suggested that such a process might be simpler if all businesses produced accounts to a common year end.
This process has now moved a step further with an announcement on 4th June that the Office of Tax Simplification has been charged with “undertaking a high-level exploration and analysis of the benefits, costs and wider implications of a change in the date of the end of the UK tax year for individuals”
It is noted that the UK has, for historical reasons, a fiscal year which runs to 5th April. This does not always sit happily with modern computerised accounting systems. The review will primarily look at what should be the relatively simple concept of switching the fiscal year end to 31st March.
However, it comments that many international businesses use a 31st December year end, and the review will also consider the possibility of a switch to bring the UK into line with other countries by a shortening of a fiscal year to align with the calendar year.
The review 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
- consider the financial and administrative implications for taxpayers, employers and businesses
- consider the practical implications for HMRC including the operation of their systems
- consider interactions with other government departments and devolved administrations
- reflect on implications for areas connected to individuals, such as partnerships and trusts”
The review is not, apparently, considering the concept of compulsory accounting basis periods, which was mentioned in the earlier call for evidence on timely payment. This seems a strange omission. It is hard to see that merely realigning the fiscal year a few days or months will make tax any simpler. On the other hand, moving businesses to a common year end, whilst ultimately making tax simpler, would involve enormous complexity with transitional periods and, one would hope, special rules for those potentially disadvantaged.
Perhaps the shift in the fiscal year is intended as a step on the way to more fundamental tax changes. It is certainly an area well worth watching.
To discuss this further, please contact Andrew.