The vast majority of Britain’s medium-sized businesses are in favour of shifting the end of the tax year to 31 December in line with its international peers, a new survey shows.
In most major countries, including the US, France and Germany, the end of the tax year coincides with the end of the calendar year. Ireland also moved its government accounting and tax year end from 5 April to 31 December in 2002.
Last month, the Office for Tax Simplification said it was considering moving the UK’s tax year, currently ending on 5 April, to either 31 March or 31 December.
Tax year end: Most UK firms would rather it coincided with the end of the calendar year
A move which would prove popular among British firms, since over 90 per cent said they would support it, according to a survey of 500 British medium-sized businesses by accounting firm BDO.
However, they said the change would need to be planned carefully with longer filing deadlines to help businesses make the transition.
‘Businesses are hoping that a rethink of the tax system can help them flourish following the challenges of Brexit and Covid-19,’ said Paul Falvey, tax partner at BDO.
‘Changing the tax year to 31 December is supported by businesses of all sizes and will be particularly helpful for those with international connections.’
The UK’s tax year for individuals runs from 6 April to the following 5 April, and it has been like this for hundreds of years.
In contrast, accounting systems used by businesses have been developed around month and quarter ends.
The financial year for the UK government accounting and for companies runs from April 1 to March 31. That – and 31 December – are the two most popular dates for accounting for multinationals.
In June, the OTS said that if they were to make the end of the calendar year coincide with the end of the tax year, the transitional year would be shortened by three months and five days and run from 6 April to the following 31 December.
‘Clearly there will be challenges associated with implementing this change, not least for the Government itself,’ Falvey said.
‘But in the long term, a 31 December year-end would also make life simpler for HMRC.
‘Aligning the year-end with more of the international community will help taxpayers to calculate and HMRC to check that the correct amount of tax is paid by those doing business in more than one country.’
Medium sized firms would also like additional tax measures to encourage businesses to grow and scale-up in the UK, according to the survey.
More than half businesses said they would like the ‘super deduction’ policy introduced by the Chancellor at the Budget in March – which is set to end in March 2023 – to become permanent
Some 53 per cent said they would like the ‘super deduction’ policy introduced by the Chancellor at the Budget in March – which is set to end in March 2023 – to become permanent.
The super deduction allows companies to claim capital allowances at a 130 per cent rate for money spent on ‘qualifying’ machinery, meaning companies can cut their tax bill by up to 25p for every £1 they invest.
Businesses would also like further tax incentives introduced, with half saying that the government should introduce better research and development tax breaks for all sizes of business.
‘The government has introduced a huge programme of Covid-19 support measures, but as we enjoy a summer with fewer restrictions, we should consider how tax incentives can be improved to inspire UK-based businesses to grow domestically,’ Falvey added.
‘Making the super deduction policy permanent as well as broadening R&D tax breaks would certainly be a good start to encourage further investment and innovation.’
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