The tax year determines the period in which businesses and self-employed people must pay their taxes on earnings they made in the previous year. The dates of the tax year vary between countries, though almost none use the beginning/end of the calendrical year (December 31st/January 1st) to demarcate the tax year.
Tax years are the time frame within which Income Tax and Business Tax are calculated and tax relief can be applied for. Therefore, the notion of the tax year is predominantly relevant to business owners and self-employed workers.
So when does the tax year start and end in the UK?
We are going to take a look at the tax year. When it starts, why it starts when it does, and what it means for you.
When does the tax year start?
The UK tax year finishes on the 5th of April and starts anew on the 6th of April every year. The tax year represents the point at which all taxes must be paid up to in the following year and many businesses and organisations use it as a time frame to assess the company’s finances.
The UK government operates within the ‘financial year’, which runs between April 1st and March 31st, as any financial statements for the coming tax year must be made before it commences.
So let’s jump in and take a look at the odd reason the UK tax year starts when it does.
Why does the UK tax year start in April?
The UK tax year starts on the 6th of April. The reason for the tax year beginning then dates back many hundreds of years when the tax year used to begin on the 25th of March.
In 1582, Europe adopted the modern leap year system and Britain was slow to follow. It wasn’t until almost 200 years later in 1752 that Britain realised it would have to follow suit for trading purposes. At that time, the tax year started on the 25th of March, which was then a holy day used to celebrate the day on which Mary was told by the angel Gabriel of her forthcoming pregnancy.
However, over the years, Britain had fallen out of step with the rest of Europe’s calendar due to their operation of a different leap year system and they were now 11 days behind. So, in order to catch up with the rest of Europe, the British government officially skipped the date 11 days forward and the new date became the 6th of April. And it is on this date that the tax year begins to this very day.
What happens at the end of a tax year?
At the end of a tax year, you will be notified by HMRC if you are required to complete a tax return. This is largely for self-employed people. If you are newly self-employed, you must register with HMRC for tax and national insurance contributions in order to receive your notification and to be able to complete your annual Self Assessment tax return.
Tax returns must be completed within the dates of the tax year, so from April 6th 2021 to April 5th 2022. The amount you or your business has earned within that time determines the amount of tax you will have to pay on those earnings.
The deadline for digitally filing your returns for the tax year between 2021 and 2022 will be on January 31st 2023, or October 31st if you are submitting a paper return.
You can divide your tax payments into two if it makes paying the tax bills easier. The first instalment must be paid on January 31st and the second on July 31st. However, the returns must all be filed by the January deadline.
What happens if you file a tax return late?
If you are late to file a tax return, you will receive a financial penalty. If you file a return that is up to three months late, you will be given a late penalty fine of £100. If your return is filed later than three months, you will have to pay more. You can find a full list of tax deadlines on the government’s website.
You can appeal against a penalty if you have a reasonable excuse.
What happens if you are late to pay your taxes?
If you miss the deadline to pay your tax bill, you will incur 2.7% interest on what you owe. This will then rise to 3% from the 21st of February, so three weeks after the deadline.
Continued failure to pay your taxes on time could ultimately lead to prosecution.
What happens if you pay the wrong amount of tax?
If you make a mistake on your tax return, you can make changes to it up to 72 hours after you have filed it. If 72 hours have already passed before you realise your mistake, then you must contact HMRC directly and inform them so they can make changes at their end.
Purposefully paying the wrong amount of tax or filling in the wrong tax code can lead to hefty fines and prosecution. If you have paid too much tax, you can apply for a refund from HMRC.
If you want to find out how much tax you need to pay on your earnings, you can use an Income Tax calculator to work it out for you.
Is the tax year the same in every country?
The tax year differs from country to country and can even differ within the same country. In the US, for example, there are four states that have different tax years from the rest of the country. Forty-six of the fifty US states set their fiscal year to end on the 30th of June. However, Alabama and Michigan end their tax years on the 30th of September, and New York and Texas end theirs on the 31st of March.
Summary
The tax year in the UK ends on the 5th of April and starts afresh on the 6th of April. It is an important date in the financial year as it is when businesses and self-employed people must demarcate their earnings and pay tax on the amount they have earned in total since the end of the previous tax year.
