Boffins at the Office of Tax Simplification are looking at moving the tax year to a more convenient date, but the change is unlikely to make any difference to the tax landlords pay.
The OTS is considering two new dates for the tax year end – March 31 or December 31.
The current tax year runs from April 6 to the following April 5.
Changing the tax year to end on December 31 would align tax affairs in the UK with those in most other developed countries, although many – including several Commonwealth nations – have a June 30 tax year end.
- 1 Why does the UK tax year end on April 5?
- 2 March 31 tipped as new tax year end
- 3 December 31 – close but no cigar
- 4 How would moving the tax year impact landlords?
- 5 Tax year end change FAQ
Why does the UK tax year end on April 5?
April 5 seems to be a random day to choose for the end of the tax year, but there is an historical reason why April 5 was picked – and it’s all to do with money.
The story starts in 1582 when Pope Gregory XIII replaced the Julian Calendar. The Julian Calendar was put forward by Julius Caesar in 46 BCE but had lost at least nine days over the 1,500 years or so of operation.
But England was out of step with the rest of the world and kept the Julian Calendar until September 1752, when another two days had been lost.
The catch-up day was September 2, 1752, which became September 14, 1752 overnight.
To ensure the Treasury lost no revenue, the ‘lost’ 11 days were tacked on to the end of the tax year which traditionally started on Lady Day (March 25). The moved the tax year start to April 5.
One more change took place to see the tax year end on April 5 and start on April 6.
The year 1800 caused a problem as it was a leap year in the Gregorian Calendar but not a leap year in the Julian Calendar. The Treasury decided to move the tax year end forward another day to compensate and the dates have stayed the same since.
March 31 tipped as new tax year end
The review will focus on the benefits of changing the tax year end to March 31, says a policy paper from the OTS.
The government already uses the date as the official year end for its own accounts. It’s also the nearest month end and quarter end to the current tax year end and the key date for corporation tax returns.
The OTS is considering a transitional year when the date changes that would be five days shorter than the standard tax year, running from April 6 until the following March 31.
December 31 – close but no cigar
The OTS review will consider December 31 as the new tax year end to align the UK with the USA, France, and Germany.
If this were to happen – which is unlikely – the transitional year would be three months and five days shorter, running from April 6 to December 31.
How would moving the tax year impact landlords?
Landlords are taxed depending on their individual or corporate status.
Changing the tax year would have little or no effect on corporate landlords as companies already work to the March 31 date for tax returns. Companies can nominate their own tax year within certain limits and then apportion their profits to match financial years.
Individual landlords work to the April 5 year end and HM Revenue & Customs already allows them to blur the first five days of April for accounting purposes to avoid complicated maths when apportioning income and expenses monthly.
The change could change the tax status of some non-resident landlords who must count the days they spend in or out of the UK to determine their residence, but HMRC is likely to legislate for this in any transitional arrangements.
Tax year end change FAQ
Which calendar does the UK operate currently?
The UK switched to the Gregorian Calendar in September 1752. The British Empire also changed calendars on this date, including much of the east coast of North America.
What tax year end have other major economies adopted?
The world’s top five economies are China, the USA, UK, France and Germany.
All the others except the UK have a December 31 tax year end.
What are the benefits of changing the tax year end?
The main benefit of changing the tax year end is everything tax suddenly becomes less complicated and easier to calculate.
Now, accounts are kept monthly and adjusted to match the tax year, which involves some simple maths but opens the potential for making mistakes that can lead to tax over or under payments.
A tax year end that aligns with a month end makes life a lot easier for accountants and book-keepers but should make no difference to the amount of tax someone pays.
When is the change likely to happen?
No one knows when the likely change date is likely to happen or if the date will change. The OTS must produce a review, make recommendations and then the matter must go before the government and MPs for a decision.
The process could take several years.
What is a transitional year?
A transitional year is the year when the tax year end changes and the timing calls for some adjustment to shorten or lengthen the year.
For instance, if the change to March 31 happened in the 2025-26 tax year, the most likely scenario would be to shorten the year from April 6, 2025 to April 5, 2026 to April 6, 2025 to March 31, 2026.
Subsequent tax years would run from April 1 to the following March 31.