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Happy New Year – New Tax Year that is

Happy 6th of April. The first day of the new tax year here in the UK.

What?

Yes, we really do have strange tax years, from the 6th April. Which as someone native to these strange and hallowed lands, I have always just accepted. But when you come to think about, it’s a rather weird combination. Then I got to thinking, what was the story behind this? We all have an origin story, so what is the humble tax year’s origin?

Origin StoryUK Tax

And, as with lots of strange things in the UK, there is some history to this. Our tax years go way back into our past. In the olden days, pre 1725, the British new tax year begun on the 25th March. This was considered the date of the new year then. So it seems a reasonable choice.

The solar system and catholic church

Britain still followed the Julian calendar (named after Julius Caesar), after refusing to follow the pope and Rome which adopted the Gregorian calendar in 1582. Hence we ended up a bit out of sync and 11 days adrift from the rest of Europe. And we realised that Rome was right, and the Julian calendar did not match the earth’s rotation of the sun. Therefore Britain decided to bite the bullet and get back in sync with the sun. And Europe. So we adopted the Gregorian calendar (with it’s changes to leap days) finally in 1752. So in 1752, the British calendar was synced up with Europe, albeit begrudgingly.

Treasury Greed

But the British treasury didn’t want a tax year short of revenue, so they moved the tax year 11 days out as well in 1752. Thereafter the new tax year started on the 5th April each year. And the final change to the dates we know today happened in 1800. A pesky leap day was eliminated in 1800, making the year a day short.  So obviously the tax year was moved out again to start on the 6th April. And there we have it, the British have a strange new tax year due to our unwillingness to fall in line with Europe and the Treasury’s keenness to collect tax. Some things never change, even hundreds of years later.

Seriously?

It’s almost a Shakespearean tale, seeing new tax years decided based on centuries of power and greed, and a delayed willingness of men* to compromise. I think it’s fascinating how these traditions that we still keep today were formed.

The Feminist Angle

* Yes I said men, as women had no power in those days, with some women only getting the right to vote in 1918 – you can read more details on female suffrage in the UK. But I often think, if women were allowed to participate fully in society, would we have designed a different society?

What this actually means2017 2018

Our tax year runs across two calendar years, from April 6th 2017 to April 5th 2018. Her Majesty’s Revenue and Customs, HMRC, is the lucky government department charged with collecting all our taxes. But what does this tax year actually mean and relate to? Mainly the personal taxes that HMRC collects from us. Personal taxes are ruled by these not so arbitrary dates. This includes income taxes on salary, savings and dividends and capital gains taxes.

Tax Free Accounts

ISA’s are the best thing since sliced bread in my opinion. A great tax free account, that you can contribute £20k to each tax year. You can read my love for ISA’s here in my Use it or Lose it article.

Tax Deferred Accounts

Another product that it ruled by the tax year is your pension. In the UK these are tax deferred accounts. This means you don’t pay income tax on any funds you add to your pension, up to the £40k limit each tax year. If you need it there is also a 3 year carry forward rule. However when you access the money in your pensions, tax is then due. Also to note, if you have a mega high income, you lose some pension allowances, so make sure you do your research as the rules are complex.

Tax Returns

tax arrowMost people in the UK don’t need to fill in a tax return. If you are employed, your employer will pay you under the PAYE (pay as you earn) tax system, deducting your income tax due at source. However if you are self employed, or have a complex situation, you have to fill in a self assessment return each tax year. And the deadline for returning this is the 31st January the following year. So we get a good chunk of time to get these completed, and the deadline is at least aligned to the end of the month.

Company Returns

As I mentioned above, these tax years are mainly for personal taxes. If you have a company, you are free to choose your own financial year. Companies are not tied to the same tax years as individuals are. And lots do the sensible thing and align the company financial year to the calendar year, and keep it simple. HMRC collects your corporation tax aligned to your companies financial year.

Personal vs Company

One thing that I have noticed, is that the government treats company tax much more favourably than personal tax. Companies are free to choose their own financial years, and can even opt to move them, gaining tax advantages. Individuals are stuck with these strange UK tax years. Not to mention the government will pay you interest if you pay your corporation tax early, but not on personal taxes. A quirk of the system or deliberate policy to encourage incorporation?

All the changes

And the new tax year is when personal tax changes are rolled out. Every year the government enjoys making the tax system a little bit more complicated. And the 6th April is when the next set of changes come in. Whether it’s allowances increased or decreased, or new incentives added, there are always lots of changes. Personally I think they have gone too far, as the HMRC computer can’t cope. And as a result even HMRC got some peoples tax wrong. I was one of the lucky ones, they calculated my bill lower by a few hundred pounds. But it does make me think, when will they stop adding complexity? When will their computer catch up?

More links

If you want more details on the history of UK tax years, you can check out the following:

Over to you

  • Do you also think our new tax years are kinda strange?
  • What do you think of the history behind them?
  • Would women have done something different?
Disease Called Debt

14 comments on “Happy New Year – New Tax Year that is

    1. Hi Discuss PF, thanks for commenting. Agree it’s a big dose of speculation if women would have done anything different. Could have been an animal farm situation.

  1. Hi, going to play devils advocate here. Your a big proponent of feminism. I know some women who hate feminists, who think that the influx of women to the workplace has driven down wages to such an extent that freedom of choice over employment is limited as the supply demand side is so weighted now in favour of the employers. Therefore women are forced to join their husbands into wage slavery whether they want to or not as the man is no longer able to fund the family himself. Not my view but one I heard that made me think….

    1. Well, you came to the right place for a discussion on feminism. Ultimately by excluding the talent of half the workforce, society loses half the potential gains. And forces people into roles by their gender, not their natural abilities and talents.

      And I would hazard a guess that the people making those comments are of the make as little effort as possible type. At the end of the day, if I can make myself attractive to employers, everyone can make changes to make themselves more employable. Some people do want an easy pass in life, and aren’t prepared to make any sacrifices for it.

        1. I don’t think we want an easy pass, we want to toil and work for something we can be proud of! Then pivot and give back in a different direction.

          And yes, it’s sad your female colleague has those views but not surprising, look how many women voted for Trump.

  2. I’m always fascinated by the history of things like this! I guess I never really stopped to consider why we do our taxes in April…but I’m sure glad we don’t add that hassle to the busy Christmas/year end season. 🙂

  3. I did wonder about Englands tax date, Australia is at the end of June so its like two christmas’s a year! I love tax time and getting everything in order

    1. Hi Mel, thanks for giving us the Aussie approach. June eh? You certainly have an unique date, and that’s cool you love tax time :). Have to admit I don’t, even though I have an accountant that does most of it for me.

What do you think?