ICAEW: Moving end of year tax dates will “modernise our tax system”

Changing the end of the tax year dates for individuals will streamline the UK’s tax system and remove complexities but will have historical importance to contend with, according to tax partners, lawyers, and industry bodies.

Documents put forward by the Office of Tax Simplification (OTS) exploring the potential to move the end of tax year dates for individuals, possibly to December 31, could provide a competitive advantage for the UK, according to a tax faculty technical manager at the Institute of Chartered Accountants for England and Wales (ICAEW).

“This change will modernise our tax system”, said Anita Monteith in an email. “Moving it to 31 December would align it with other major economies and make businesses more internationally competitive.”

Hilesh Chavda, private client partner at London-based law firm Spencer West says aligning the dates will make it easier for international clients and those with international connections who are “often caught unaware of the random arbitrary date”.

The tax year ends on December 31 in countries including the USA, France and Germany. In 2002, Ireland moved its government accounting and tax year ends from April 5 to the end of the calendar year.

However, this could see a nine-month transition period during which businesses may find themselves with “teething problems”, says Steven Holden, tax director at Edwards Chartered Accountants.

“The client could effectively have a cash flow problem in terms of having to pay, in the year of transition, that tax liability [from the previous year] four months earlier than they would normally expect to.”

“We could have some quite severe complication around overlap by having that short period of account, it could lead to crystallisation of liabilities for some clients as a result,” he says.

Carl Reader, chair of the practitioners panel at ACCA, points out “for sole traders, business owners and partners in partnerships, it could be a little bit more challenging because to the outside world, it would appear that they’ve had a very bad year”.

As part its review, the OTS will consider the financial and administrative implications for taxpayers, employers and businesses as well as take account of relevant international experience.

The OTS are also exploring the potential of bringing forward the end of tax year to March 31, which “makes a lot of sense” for those already using the date as an accounting year end date and “formalising the change would provide certainty in this area,” said Karen Chadwick, tax partner at Azets.

Changing the year-end will also make the transition to Making Tax Digital for income tax “less complicated”, added ICAEW’s Monteith.

However, Chadwick pointed out that the process to make changes could “potentially be a mammoth task”.

The UK’s April 5 end of tax year date holds historical value as it was first introduced in 1800, so any decision “should not be taken lightly”, added Chadwick.

Richard Morley, tax partner at HW Fisher argues moving the “gloriously historical” April 5 date will result in the story being “consigned to the history books”.

The OTS will publish a report in the summer of its findings, which if the government chose to make changes to the tax year dates should carefully consider the current climate “which has already caused so much upheaval for so many,” said Chadwick. “Timing will be key to the success of such an implementation.”