We have always enjoyed explaining to our clients why the UK’s fiscal year ends on 5th April.
A pleasant excursus into Mediaeval and Renaissance history
In the 12th Century, the Church decreed that the Church’s fiscal year, but not its liturgical year, should begin on Lady Day; that is the March quarter day, 25th March. One might think that rather odd as Lady Day commemorates the Annunciation of the Angel Gabriel to the Blessed Virgin Mary, the day on which Christ was conceived by the Holy Ghost and 40 weeks, the human gestation period, before our celebration of the birth of Christ at Christmas. One might have expected Lady Day to start and not to end the fiscal year.
Be that as it may the secular authorities followed the Church’s lead. Cumulative inaccuracies in the Julian Calendar, the astronomical calendar used widely in Europe until the sixteenth century after its prescription by Julius Caesar in 45BC, meant that with the passing of time there was an increasing discrepancy between the end of the calendar year and the physical year.
In 1545 the Council of Trent, under Pope Gregory, adopted a new calendar, the Gregorian Calendar which was swiftly adopted by Roman Catholic countries. Its adoption was much slower in other countries and it was not adopted by Britain until 1752 (and not until 1923 by Greece).
In this country, in order to adjust to the transition, there was a jump of 11 days so that the 2nd September 1752 was followed immediately by the 14th of September 1752. Riots followed by those who were concerned that they had lost 11 days of their life but, in general, the British people adjusted with typical phlegm.
The Government did not wish to accept an 11/365ths reduction in its tax revenues for the year of transition and so the end of the fiscal year on 25th March under the Julian Calendar became the 5th April under the Gregorian Calendar.
And that is why we have a 5th April fiscal year end.
It is always pleasant to see the connection between the present and the past; to be able to explain some feature of British society by reference to our history. Historical continuity, however, tends to be untidy and bureaucrats hate untidiness.
When the Office of Tax Simplification was first set up many in the profession hoped that it would be an engine for real and effective simplification of our tax system in areas which matter. Those of us with a little more experience of how government works, however, noted its funding by the Treasury and that it was largely staffed by civil servants and were sceptical.
Our scepticism proved to be justified; the Office of Tax Simplification is now little more than a stalking horse by which the Government tests the public’s likely reaction to fiscal changes by raising the possibility of making changes to our tax system which might be unpopular in a manner in which they may be disowned if they prove to be so. A recent example was the Office’s exploitation of a project on IHT simplification to propose abolishing, to the taxpayer’s detriment, the CGT uplift on death.
An encouraging precedent?
The OTS announced in June that it is to review the potential for moving the date of the tax year end. It used not to be the case that our civil servants would automatically assume that the practices of other countries must be better than our own. The OTS however points out by way of justification of its announcement that many other countries use the 31st December as if that in itself were reason for us to change our year-end.
At the end of the eighteenth century France’s National Convention had a similar appetite for rejecting the inheritance of the past and replaced the Gregorian Calendar with a new republican calendar. The National Convention was excitingly radical in this as in so much else. The new calendar’s numbering of years began with the declaration of the French Republic on what was, under the old calendar, the 22nd September 1792 and became the first day of Year I. There were still twelve months in the Republican Calendar but they were all given new names and divided into three ten-day weeks called, rather confusingly, ‘decades’. The earth, unfortunately, refused to adjust its orbit to the new calendar, so five, or in a leap year six, days had to be added after the end of the last month. Each day was divided into ten hours, each hour into 100 minutes and each minute into 100 seconds.
It was all deeply satisfying to the official mind, but in spite of the glorious rationality of this new system, Napoleon abandoned it in 1805.
The OTS proposes nothing so stirring. It will merely consider moving our fiscal year end to 31st March or 31st December. It will also consider ‘potential alternative approaches to addressing practical issues connected with’ the present tax year.
Why not a new fiscal year end?
Few people we know grumble about our pleasingly eccentric fiscal year end. It undoubtedly causes extra cost to businesses, and particularly for larger companies, to deal with the difference between their accounting years and the fiscal year but that would be the case to some extent whatever fiscal year end was used unless the Government prescribed a single accounting period end date.
No doubt if we were starting from scratch, it might be more efficient to adopt a calendar year as our fiscal year. There are significant political difficulties, however, with changing an existing period of account for a fiscal system to a new one. In the transitional year the period of final account must either be shortened or lengthened. Taxpayers tend not to like being asked to pay tax earlier than they had expected and governments do not like to wait for their money. Large businesses might like to be spared the inconvenience of our present system but they will not welcome making the investment in new systems which the change would require.
Let’s forget it
It may be, therefore, that the OTS’ review when it is made will be quietly shelved and we shall be spared, at least for a time, a further act of historical amnesia.