Technical Lead and Senior Policy Adviser ICAEW
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Is it time to change the tax year end?

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Quirky and old fashioned, the 5 April tax year end is peculiar to the UK. Anita Monteith explains why this is an issue now and the considerations for and against change.

22nd Jun 2021
Technical Lead and Senior Policy Adviser ICAEW
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The Office of Tax Simplification (OTS) has been asked to review the implications of moving the end of the tax year from 5 April to 31 March.

There are other ways to deal with the practicalities of the UK’s slightly less conventional month end, but in the context of HMRC’s call for evidence on reforming the tax administration framework, and with the increasing pace of change in the digital sphere, if we are ever going to change, then the time to discuss it is now.

The OTS will also be looking more generally at a move for the tax year end to 31 December.

Historical quirk

Tax lecturers look for stories to interest their audiences and the tale which never fails to deliver is why 5 April is the end of the UK’s tax year. When we moved from Lady Day, 25 March, back in 1752 it didn’t go well and many peasants revolted over the days they lost, but at least we stabilised our seasons.

This time the drivers are more related to digital and possibly the need for greater alignment with business practice and the rest of the world.

Push to digital

Regardless of the challenges faced by those with poor broadband or those perfectly happy to write up their accounting records only periodically, the UK economy is moving to digital fast.

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Replies (52)

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By Beef curtains
22nd Jun 2021 18:25

Changing from the antediluvian 5/6 April should have happened decades ago. Even the Irish managed it when they joined the Euro, ridding themselves of something that had marked them out as a British colony. That fact was not understood by most of a population that insisted on repainting the pillar boxes green! Change to 31st March?.....what a big deal. That was done in 1965 with the intro of Corporation Tax and the creation of the "Financial Year". The idea represents utter timidity.

All this is indicative of the total resistance to change within the Treasury and its Revenue lap dog. Nothing can be allowed to be simplified........God forbid, the taxpayers might understand it . When the current year basis was introduced for unincorporated traders I wrote to suggest that the wacky start up rules could be replaced with one.....pick any accounting reference date you like but your first accounting period may not exceed twelve months. I didn't even get a reply. Instead we got something even more [***] crazy.

The Treasury prefers to lumber the taxpayer with complicated nonsense like self assessment, computerized returns and MTD. Jan/December should be introduced forthwith. There would be little effort required of taxpayers but some work needed our lar arsed "civil" service.

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Replying to Beef curtains:
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By Brend201
22nd Jun 2021 22:53

Beef curtains wrote:

Changing from the antediluvian 5/6 April should have happened decades ago. Even the Irish managed it when they joined the Euro, ridding themselves of something that had marked them out as a British colony. That fact was not understood by most of a population that insisted on repainting the pillar boxes green!

The condescending reference ("even the Irish") is more than a little ironic. The Irish chose to go with calendar year for good reasons and made it happen - successfully - twenty years ago. There was no need for the additional insulting (irrelevant and untrue) remarks. Why is the UK still thinking about it?

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Replying to Brend201:
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By Beef curtains
23rd Jun 2021 11:44

Just what was untrue?

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By Ken Howard
22nd Jun 2021 19:49

At the very least we need to scrap this 5th of the month nonsense for PAYE. All it does is cause confusion. We, as accountants/tax agents know that, say, PAYE month 1 is fundamentally April, but extends to 5 May, but taxpayers/small employers etc find that difficult to understand.

I could live with the tax year ended 31 March if the 5th of the month was removed, but, yes, even better to align it with calendar years. But the former is a lot easier to achieve than the latter.

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Replying to Ken Howard:
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By Paul Crowley
22nd Jun 2021 20:49

PAYE dates cause more issues than a quirky tax year.
HMRC really not interested as 31 March accounts are seen as the same as 5 April anyway.
Who cares 7 days either side.

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Replying to Paul Crowley:
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By Geoff56
23rd Jun 2021 09:02

I will be looking at my sole traders who have a 5th April year end, with a view to moving them to 31st March, so they won't be caught by MTD for ITSA until 1st April 2024.

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Replying to Geoff56:
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By Paul Crowley
23rd Jun 2021 12:19

Good idea
Even if the real figures are 5 April

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By Rgab1947
23rd Jun 2021 09:43

Using 5th April is totally illogical in the 21st Century.

But for the dye in the muds and the doomsayers changing to 31 March should be easy.

Lets get it done.

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By paul.benny
23rd Jun 2021 09:43

The 5 April tax year end may be strange and out-dated. And 31 March or calendar year would undoubtedly be more straightforward.

But is it worth the effort of transition? There are so many places where the current tax calendar is embedded into software, business processes, payment timetables. And, of course there will be all the planning opportunities and anti-avoidance rules as well as some hard luck stories.

None of this effort to change is cost-free and none of it will generate any more revenue for HMRC, nor any income for businesses having to make the changes.

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7om
By Tom 7000
23rd Jun 2021 09:45

Year end Should be December with returns due by 30 June
Then we can go skiing in January :)

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Replying to Tom 7000:
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By North East Accountant
23rd Jun 2021 11:59

Skiing in January......now you're talking.

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Replying to Tom 7000:
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By Paul Crowley
23rd Jun 2021 12:49

Better still
Work double hours for half the year and shut for half the year
No skiing in January
Skiing in July

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By Charlie Carne
23rd Jun 2021 09:54

A 5th April year-end causes huge complications for all of the issues highlighted by Anita (especially re MTD filing requirements) and more. A 31st December year-end makes most sense, so as to align the tax year with the calendar year and international norms, but would require lots of complex anti-avoidance legislation to prevent 'gaming' the system during the transition period. On the other hand, since HMRC treat 5th April and 31st March as the same for many aspects of the tax system, a change to make 31st March the end of the tax year should be relatively painless and I suspect would require very limited legislative changes and cost very little in either time or money.

I would argue that a change is essential, as our archaic system adds unnecessary problems for the multiple filing requirements under MTD. The Treasury should decide as a matter of urgency whether to make the small change to a March year-end or go all the way with the much more complex change to a December year-end. The former could possibly even be implemented by the start of MTD, whilst the latter would take much longer to propose, consult on and draft the legislation, but may bring bigger benefits.

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Replying to charliecarne:
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By Brend201
23rd Jun 2021 10:09

It is easier to respond to this comment than to an earlier condescending comment. Yes, in Ireland there was some gaming of the system. Those filing tax returns (i.e. mainly self-employed) who were able to delay or accelerate the recognition of revenue had opportunities to reduce their income tax bills for the short tax year (i.e. the period from 6th April 2001 to 31 December 2001). That seems to have been accepted as part of the one-time cost of the move but is now lost in the past. The benefits continue every year.

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tailwhip
By tailwhip
23rd Jun 2021 09:59

If we're going through the rigmarole of changing tax years (which I support), why wouldn't you want to align it with calendar year! No messing about with 20/21 or 21/22...the 21 tax year! Rolls off the tongue much better and I'm sure taxpayers would understand a bit better.

I once had a client take his P60, and take off the last 3 month's payslips and add in the prior year's last 3 month's payslips to put into his tax return, a frankenstein way of making it to calendar year. I had to explain it was a pointless exercise.

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By eppingaccountant
23rd Jun 2021 10:09

The 5 April tax year end is "peculiar" to the UK. Shouldn't that read "particular?"

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Replying to eppingaccountant:
By Duggimon
23rd Jun 2021 10:22

No, I think peculiar is better. It's both particular and weird.

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By Donald MacKenzie
23rd Jun 2021 10:21

Corporation Tax is already to 31st March. Self employment accounts are prepared to any chosen month end and included in the return to 5th April.
The real problems come from PAYE and CIS. It is easy to look at a system and see, for example, the June report has been submitted and later, on getting a penalty, realise it was the report the 5th June that is in but the June numbers (to 5th July) were not submitted.
We should get rid of 5th of the month but I do not see a problem with a financial year to 31st March.

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Replying to Donald MacKenzie:
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By Paul Crowley
23rd Jun 2021 12:53

Agree
All the rest is irrelevant
PAYE and its little brother CIS are the problem

Those two are a 10 minute fix

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By Huw Williams
23rd Jun 2021 10:24

After reading a few comments, I can see the politicians rubbing their hands and saying let's "make December happen"

Thanks (1)
Morph
By kevinringer
23rd Jun 2021 10:32

Pre-SA some income was taxed CYB and some PYB. Ridiculously complicated. When SA was introduced 25 years ago we had to change from PYB to CYB. It was a one-off change: big problem at the time but made sense. It's the same with 5 April. It'll be a one-off. Look at the huge changes we've had to cope with 2020-21 CJRS etc. So we can do it. But what to change to is the question. Changing to 31 March will be relatively simple: but there's still going to ambiguity. For example when HMRC refer to 2021, what year are they referring to? For CT HMRC mean 2021-22, but for IT they mean 2020-21. The only way to remove that ambiguity is to go for calendar year end. But that's massive and would involve the Government changing the public sector accounting year. Let's change to 31 March.

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Replying to kevinringer:
ALISK
By atleastisoundknowledgable...
23rd Jun 2021 16:18

kevinringer wrote:

… when HMRC refer to 2021, what year are they referring to? For CT HMRC mean 2021-22, but for IT they mean 2020-21. The only way to remove that ambiguity is to go for calendar year end.

… or to tell the right & left hand to make a god-damn decision.

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Morph
By kevinringer
23rd Jun 2021 10:35

Question for my fellow AWebbers. Prior to CT being introduced in 1965, companies paid income tax to 5 April. When CT was introduced it sensibly was 31 March not 5 April. Does anyone know why didn't the Government change the income tax year at the same time?

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By Duggimon
23rd Jun 2021 10:43

article wrote:

Timing: We have had a terrible couple of years and many accountants and their clients are already exhausted, so we should avoid unnecessary changes just now
Cost: It will be expensive economically, for all the systems changes and will take a lot of time
We have managed for hundreds of years, so why is change so important at all?

All very good reasons against MTD for IT, but less so against changing the year end, if we're going ahead with the more problematic one of the two then why not just do both? Do it at the same time even, nobody will even notice the change in year end among the wailing and gnashing of teeth.

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By fozia
23rd Jun 2021 10:57

The arguments for outweigh the arguments against. It is going to be hard, but getting it right first time is better than changing to 31st March and then considering a change to 31 December a few years / decades later!
Given that HMRC are making seismic shifts to the tax framework with MTD they may as well get this in at the same time. It will certainly solve lots of staggered MTD quarterly returns. As accountants we are used to adapting to new legislation (albeit grudgingly). The software houses are already in development mode as far as MTD is concerned and HMRC have created legislation and processes at break neck speed during the pandemic, so it is not impossible to get done, so long as it gets the right political will to do it.

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By paddy55
23rd Jun 2021 11:03

The 5th April tax year-end was arrived at as follows. The Roman year ended on 31st December. The Christians tried to change this and picked on March 25th as the beginning of the new year. This was based on the assumed conception of Jesus on 25th March, being 9 months from birth date of 25th December. The calendar was amended in the 18th century with a jump of 11 days. This moved the year end to 5th April (or should it have been the 4th April?).

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Replying to paddy55:
Morph
By kevinringer
23rd Jun 2021 11:12

So we'll be going back to where we started with the Romans 2000 years ago? I knew we should have never abandoned Latin for English.

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Replying to paddy55:
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By Paul Crowley
23rd Jun 2021 13:00

Two changes took place
Start of year was changed to 5th April
Then moved to 6th April as the extra day once every four years was not enough

https://www.taxback.com/blog/uk-tax-history-lesson-uk-tax-year-ends-apri...

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Replying to paddy55:
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By paul.benny
23rd Jun 2021 14:16

I don't think that's quite correct. Not least since, in the UK, income tax is a 19th century innovation.

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Replying to paul.benny:
boxfile
By spilly
23rd Jun 2021 18:16

Income tax maybe, but there were land and other sundry taxes long before then.

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Replying to paddy55:
Morph
By kevinringer
24th Jun 2021 09:14

If 25 March was the tax year, and Lady Day, and also the date the quarterly rents ran from, why did only the tax year change to 5 April and quarterly rentals stay on 25 March (we still have some of our farming clients on 25 March rentals)?

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Replying to kevinringer:
By Charlie Carne
24th Jun 2021 14:41

Interestingly, it was pointed out to me many years ago when I was training that it was easy to remember the date on which each of the quarter days fell, as the date corresponded with the number of letters in the name of the month plus 20 (except for Christmas Day, which is easy to remember for other reasons). Thus Lady Day is 25th March (5 letters in "March"), Midsummer Day is 24th June (4 letters in "June"), and Michaelmas is 29th September (9 letters in "September").

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By SteveHa
23rd Jun 2021 11:17

5 April is a joke. I'm currently working on a strange FTC case (yes, strange apart from apportioning time periods), and having to get the foreign accountant involved with doing calculations that he shouldn't be doing yet just so that I can prepare a Y/E 5 April 2021 Return.

Moving to 31 December should be a doddle, if commencement and cessation provisions are abandoned and people are just taxed on what is relevant to the period of assessment. Treasury won't like that, though, because they will potentially delay 3 month's tax revenue in the process.

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By Nick Graves
23rd Jun 2021 11:50

Yeah, will be 31 February knowing HMRC

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By alialdabawi
23rd Jun 2021 12:24

Given the seemingly endless discussions points of contention in regard to HMRC's conduct, approach & stance on various topics regarding tax administration and the support of agents & taxpayers alike, perhaps it is time for a movement to get a practice-experienced individual heading HMRC, with a mandate to achieve all the easy-wins - benefitting everyone alike - upon entry into office. Surely someone long in the tooth with real-world experience can be found!

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Replying to alialdabawi:
By SteveHa
23rd Jun 2021 15:31

Except most competent HMRC moved the other way, into practice, and there's sod all incentive to move back.

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By Nebs
23rd Jun 2021 12:29

The country is skint. My suggestion would be to increase the tax year to 13 months, with a different year end every year, thereby reducing the value of the personal allowance and moving more people into the higher rate bands.

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ghm
By TaxTeddy
23rd Jun 2021 14:24

I'm really pleased to see Anita Monteith contributing here on AWeb.

But rather than participating in this non-debate (is that a word?) on something which will never happen, can I ask for her comments on this thread.....

https://www.accountingweb.co.uk/tax/business-tax/dont-resist-mtd-for-the...

MTD is much more important to practitioners at the moment and I for one have no idea whether ICAEW is supporting it's members, putting our argument to HMRC, or what?

BTW - I expect to be met with a deafening silence on this from the ICAEW, IoT, et al.

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By geraldw
23rd Jun 2021 15:23

If I had £1 for every time that I have said "5th of the month for a tax period end is nonsense" I would be a wealthy man. How much time is wasted agreeing HMRC figures with clients' accounting year end figures for CIS tax deducted by customers. That little spell between 31st March and 5th April when inconsiderate customers choose to pay and deduct CIS tax. And if the figures differ - getting money out of HMRC is harder than getting blood out of a stone.
Let alone tax rule changes that have to be applied for different periods depending on incorporated or non-incorporated businesses.

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By adam.arca
23rd Jun 2021 18:02

Hang on a minute, isn’t there a certain inconsistency of thought here?

Most of us are opposed to MTD, partly because we can’t see the point, partly because we’re defending our clients’ right to arrange their own affairs their own way, but mostly because we think HMRC will make a complete cobblers of the job.

Yet on this thread there are multiple posters advocating not only a “sensible” date for the tax year end but the opportunity to be radical and move it to 31/12. What leap of faith is needed to believe that HMRC can find its way out of the toilet let alone manage a change of this magnitude? (And bearing in mind that this isn’t the same Revenue of 30 years ago which handled the SA / CYB change pretty well).

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By adam.arca
23rd Jun 2021 18:11

And just another thought:

31 Dec isn’t the universal tax year end. Australia’s is 30 June and they’re likely to become an increasingly important trading partner so, that argument goes, why not align with them?

Or, radical idea here, why not just align with what works best for us? At the end of the day, international issues are a vanishingly small part of the average practice’s workload and of the average taxpayer’s tax burden, so let’s avoid the tail wagging the dog here.

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By AndyC555
23rd Jun 2021 18:42

"The tale which never fails to deliver is why 5 April is the end of the UK’s tax year. When we moved from Lady Day, 25 March, back in 1752 it didn’t go well and many peasants revolted over the days they lost, but at least we stabilised our seasons."

Tsk. That 'tale' doesn't explain WHY the change was made in 1752. It goes back to 1582 when Pope Gregory XIII ordered a switch from the inaccurate Julian calendar to our current solar (Gregorian) calendar system. Except the UK didn't switch. And so was immediately 10 days behind Europe. By 1752 it was 11 days behind (due to there being no leap year in 1600 in the Julian calendar).

At the time the tax year started on 25th March and when the decision was finally taken to align calendars, the powers that be decided that the financial year had to have 365 days and so was the last day of the tax year was shunted to 4th April.

A further day was added in 1800, a year which would have been a leap year in the Julian calendar but wasn't in the Gregorian.

So we arrived at 5th April as the tax year end and stuck with it ever since.

"many peasants revolted over the days they lost"

Although the days 'lost' were actually 3rd September 1752 to 13th September 1752 (inclusive) so not actually tax related. And there were probably not any actual revolts or riots, albeit a lot of grumbling.

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Replying to AndyC555:
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By Ian Bee
24th Jun 2021 11:33

Just to point out that the Julian and Gregorian calendars differed in their treatment of leap years. In both, the starting point is that a leap year is every four year, when the year is divisible by 4 exactly, but in the Gregorian calendar century years are only leap years if divisible by 400. The year 1600 was a leap year in both but 1700 was not a leap year in the Gregorian calendar.

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Chris M
By mr. mischief
23rd Jun 2021 19:40

This date shift thing was even more confusing in Russia where the 1917 October revolution - as per the film Hunt for the Red October - actually took place in November. No wonder Communism failed if they couldn't even get that right!

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By vowlesj
23rd Jun 2021 19:51

What's wrong with keeping 5th April? we have a rich history of quirky British eccentricities so lets try keeping hold of this one.
I am sure that HMRC are happy to treat 31 March as a substitute for 5th April. why not add in a clause that taxpayers can choose to use 31 March or go to 5th April ... so we can solve the IT hassles by using whole months for reports but keeping our quirky Britishness!

Very usefully, it wouldn't need a huge amount of change and redrafting of legislation.

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Replying to vowlesj:
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By Vallery Lee
24th Jun 2021 09:40

I am in total agreement with Vowlesi, let's keep our characteristic quirkiness. I haven't even gone metric and hope that now we are out of the Common Market (I don't like anything common) we will go back to Imperial Measure, after all we invented it.

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By mydoghasfleas
24th Jun 2021 08:39

Has everyone missed the point?

If you change the year end from 5 April to 31 March, you have a tax first tax year of 360 days but you pay 365 days' worth of tax. It was not so much about the peasants being up in revolt it was the merchants paying tax who realised they would be paying an extra 12 days tax that led to the date changing from Lady Day to 5 April.

I do wonder if the OTS is fit for purpose when this is the best it comes up with.

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Replying to mydoghasfleas:
By SteveHa
07th Jul 2021 16:57

I dare say that, if a shortening to 31 March were to happen, the majority of people would see diddly squat difference, the majority being employees, and the majority being monthly paid, and the majority being paid towards or at the end of the calendar month.

Granted, there would be fringe cases (weekly paid, self-employed with a Y/E between 1 - 5 April inclusive) that would need to be accommodated, but hardly insurmountable.

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Replying to mydoghasfleas:
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By Donald MacKenzie
24th Jun 2021 14:54

If a tax year was shortened to 31st March you would pay tax on the income from the period 6th April to 31st March so 360 days worth of tax. Don't see a problem.

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Replying to Donald MacKenzie:
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By Paul Crowley
24th Jun 2021 21:40

But personal allowances would need reconsideration

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