Have you ever wondered why on earth the tax year ends on 5th April – and why it’s not just aligned with the calendar year? You are certainly not alone!
Most of the world looks at the United Kingdom’s 5th April deadline with a mix of confusion and pity. While our friends in the USA or Germany wrap things up on 31st December, and our own Corporation Tax year aligns neatly with the month-end (31st March) if not the year-end, the individual taxpayer is left dancing to the tune of a very specific, very odd date.
We spend a lot of time helping our clients navigate the quirks of HMRC, but even the most seasoned Chartered Accountant has to admit that the 5th of April is a bit of a historical “hangover.”
To understand why, we have to travel several centuries…
The Roman Connection and Lady Day
Until 1752, the New Year in England didn’t start on 1st January. Instead, it began on 25th March, known as Lady Day. This was one of the four traditional “Quarter Days” in the English calendar – the others being Midsummer (24th June), Michaelmas (29th September), and Christmas (25th December). These dates were the pillars of the English legal and financial system; they were the days when rents were due, school terms started, and workers were hired.
Lady Day on 25th March was particularly significant because it was the Feast of the Annunciation. In the eyes of the church and the state, it felt like a natural point for a fresh start. Consequently, the tax year and the calendar year both kicked off on 25th March.
Eleven Missing Days
The problem, as is often the case with history, was the calendar itself. Britain was using the Julian Calendar, which had been around since the time of Julius Caesar.
Unfortunately, the Julian Calendar was slightly inaccurate, overestimating the length of the solar year by about 11 minutes. Over centuries, these minutes added up to days, meaning the calendar was slowly drifting out of sync with the actual solar seasons.
By the mid-18th century, Britain was 11 days adrift from most of Europe, which had already switched to the more accurate Gregorian Calendar. In 1752, the British government finally decided to catch up. To correct the drift, they decreed that Wednesday, 2nd September 1752, would be followed immediately by Thursday, 14th September 1752.
While this fixed the calendar, it created a massive headache for the Treasury. If the tax year had ended on the “new” 25th March, the government would have lost 11 days of tax revenue. To ensure no penny was left behind, the Treasury simply pushed the start of the new tax year forward by 11 days, moving it from 25th March to 5th April.
No, that’s not a typo – the START of the tax year was now 5th April (not the 6th, as it is today).
The Leap Year Glitch
There was one final tweak in 1800. The Gregorian Calendar treats century years differently regarding leap years (1800 was not a leap year in the Gregorian system, but it would have been in the Julian system).
To prevent falling out of sync again, the Treasury added one more day, landing us firmly on 6th April for the start of the new year, meaning the old one ends on the 5th.
And there it has stayed, immovable and eccentric, for over 200 years.
Are We the Only Ones?
We are certainly in the minority when it comes to ending mid-month.
Most countries prefer the “clean” break of a month-end. For example, Australia and Egypt run their tax years from 1st July to 30th June. India and Hong Kong use 1st April to 31st March. Even our own HMRC use the 31st March month-end for Limited Companies.
Why’s this, you ask? It’s because the (relatively) modern concept of a Limited Company only began in 1855, well after all this messing about in the 1700s, so there was no risk of losing those 11 days with Corporation Tax.
However, if you are looking for a kindred spirit in “unusual” dates, you have to look toward Iran and Afghanistan. They use the Solar Hijri calendar, meaning their tax year usually begins on the spring equinox (21st March).
South Africa also offers a bit of variety, with their tax year for individuals ending on the last day of February—a date that jumps around every four years thanks to leap years. But at least it’s still a “month end” in the general sense
Why Not Change It?
There have been numerous calls to move the UK tax year to something more sensible. The Office of Tax Simplification even published a report on the matter. The argument is simple: it would make life easier for taxpayers, small business owners, and those who have foreign income and need to report income in both countries.
The reason we don’t change it probably boils down to the sheer administrative upheaval it would cause. Plus, no doubt there would be endless loopholes that would need to be worked out – and closed off – to avoid accountants (surely not!!??) taking advantage of the transitional year in order to reduce tax for their clients.
That said, the Republic of Ireland, who previously shared our 5th April tax year end, switched to the much more sensible option of 31st December, back in 2002. This was to align it with most other EU countries, who have aligned themselves around the calendar year.
Making the most of 5th April
While we can’t change the history of the Treasury, we can help you manage the reality of it. Whether you’re a sole trader considering a big purchase in early April, or a company director/shareholder thinking about the “right” timing of dividends, it (almost) always revolves around the 5th April.
Timing is everything!
Would you like us to review your current tax position to ensure you are fully prepared for the next 5th April deadline? Contact the Penguins today for a chat.
