The UK remains defiantly out of step with much of the world, but it is reforming some of its tax regime.
One of the more enduring quirks of business law in the UK is the fact that the tax year begins on April 6th and not at the beginning of the calendar year in January. Given that many other places with historic ties to the UK – the US, Ireland, Jersey and various European countries – it seems strange that tax authorities have made move towards harmonising the tax year to bring the UK more in line with its peers.
The reasons behind the rule – as with many arcane aspects of UK legal and financial system – reflect both careful planning and happy accident.
Paying the rent
The UK’s April 5 year-end in fact dates back to a time when people in England were required to pay rents to their landlords quarterly on what were, and still are, known as quarter days; March 25, June 24, September 29 and December 25. The first in the year, known as Lady Day, came to be regarded as the start of the financial year. In 1582, Pope Gregory XIII ordered that the old Julian calendar introduced by Julius Caesar should be replaced by the Gregorian calendar we use today.
The old calendar, although fairly accurate, was slightly too short and had slipped over the years. Much of Europe moved across immediately, but Britain took a little longer — 170 years in fact. By then, our calendar was out of step by 11 days and so it was that after the taxes had been paid on March 25 1752, 11 days were removed from the calendar and the new tax year started on April 5 1752.
This caused understandable concern at the time, but it took another 20 years to remove one more day (to accommodate the year 1800 not being a leap year) for the start of the new tax year to move to April 6, the date we still use today.
Back to the future
While this story may be interesting to those with a passionate interest in the history of taxation, it underlines why the UK’s tax system remains out of step with much of the rest of the world. But that is beginning to change, partly thanks to last year’s launch of the 10-year strategy, “Building a trusted, modern tax administration system”, a major part of which requires businesses and landlords to keep accounting records digitally and report income details quarterly, something that will bring things more up to date.
Quarterly reporting is already a requirement for VAT and these returns must be submitted to calendar month ends, for example quarters ended June 30, September 30, December 31 and March 31. By 2023, income taxpayers will be reporting quarterly too.
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