The UK’s unusual tax year end date is coming under scrutiny in tandem with potential changes to the tax year basis for the self-employed.
The start of the tax year in the UK is 6 April. It is a date steeped in history – think quarter days and the introduction of the Gregorian calendar in 1752. In the age of HMRC’s Making Tax Digital programme, that 6 April legacy date looks rather bizarre. So, why not make the tax year begin on a more sensible date?
The government’s financial year (and the corporation tax year) starts on 1 April, a modern quarter day. This summer, a paper from the Office of Tax Simplification (OTS) set out details for a “high level exploration” of bringing the personal tax year into line. The OTS also promised that its work would outline the “additional broader issues” of making 1 January the tax year start date.
Self-employed year basis change?
Somewhat ironically in the following month, HMRC announced a consultation on changing the basis year period used for calculating self-employed tax liabilities. At present, if you are self-employed, you are normally taxed on the profits made in your trading year that ends in the tax year. So, for example, if your trading year ends on 30 June, then in 2021/22, it is the profits for your trading year ending on 30 June 2021 that are taxed.
HMRC wants to scrap this principle and tax the self-employed on their actual trading profits in the tax year starting from 6 April 2023. This would mean pro-rating the profits of two trading years. It also implies some difficult problems in the 2022/23 transitional year. For somebody with a 30 June year end, it could mean taxing profits from 30 June 2021 to 5 April 2023 all in the one tax year.
Fortunately, HMRC does suggest that there would be an optional spreading of “excess profits” over five years. However, the consultation paper made no reference to any revisions to the tax year end date, despite what looks like a golden opportunity…
Meanwhile, back in 2021, do not forget that if you file a paper tax return, your 2020/21 return is due by 31 October. File online and you have another three months.