Tax. While it’s not the most scintillating topic of conversation, an understanding of the basics is essential, especially for freelancers. In this article, we ask, “Why does the tax year start in April?” We also take a look at tax return deadlines, and other key dates in the UK tax calendar.
While this article aims to give you a background on important UK tax dates, it definitely doesn’t constitute financial advice! If you want to learn more about tax in the UK, head over the Gov.uk website.
Why Does the Tax Year Start in April in the UK?
The UK tax year starts in April because of a change of calendars over 250 years ago. The tax year originally started on the 25th of March. This used to be New Year’s Day, believe it or not!
However, there was a small problem with the Julian calendar – it was 11.5 minutes longer than a solar year! Over time, this seemingly insignificant time difference added up, until eventually England was 11 full days out of sync with the solar calendar.
In 1752, England adopted the Gregorian calendar to address this issue. When England made the switch, 11 days were skipped to catch up with the solar calendar. The Treasury, concerned about a loss of tax revenues as a result of this, extended the tax year until the 5th of April. In 1800, the Treasury then extended it one more day to the 6th of April to account for a missed leap year as a result of switching to the Gregorian calendar.
Does the Tax Year Run From April to April?
This means the UK tax year ends on the 5th of April, and the new one starts on the 6th of April. Particularly for self-employed people filing self-assessments, it’s important to have all your finances and supporting documents in order by this date, ready to file according to the deadlines set out below.
Tax Return Deadline UK 2021
There are several key tax dates for UK taxpayers, depending on your tax status. Here are some of the key dates for the 2020/2021 tax year if you’re self-employed:
31st January 2021 – First payment on account due for 2020/2021 tax year
5th April 2021 – End of 2020/2021 tax year
6th April 2021 – Start of 2021/2022 tax year
31st July 2021 – Second payment on account due for 2020/2021 tax year
5th October 2021 – Deadline for registering for Self Assessment
31st October 2021 – Deadline for filing paper tax returns
31st January 2022 – Deadline to correct any errors on tax return filed the previous year
Problems With the UK Tax Year
One problem with the UK tax year is that it doesn’t align with other jurisdictions around the world. For individuals and businesses operating across multiple jurisdictions, this can cause a bit of a headache. Double tax treaties exist between the UK and other countries to ensure individuals don’t pay tax twice. But it’s still quite complicated to keep track of dates and what you need to declare in specific places. We discuss an example of a country with a different tax year to the UK below.
US Tax Year
In contrast to the UK, the US tax year runs from the 1st of January to the 31st of December. The filing date for individual federal tax returns falls on the 15th of April (or the next business day, if the 15th is a weekend or a holiday).
In 2021, the IRS extended the deadline to the 17th of May due to the COVID-19 pandemic. When the federal tax system was first introduced, the filing date for tax returns was originally set as the 1st of March. As the number of federal taxpayers grew over time, this date was pushed back to accommodate the higher volume of tax returns, eventually landing on the 15th of April.
US citizens or residents living outside of the US have until the 15th of June to file their tax returns. Most countries take a residency or territorial-based approach to taxation. However, in the US, every citizen must file a federal tax return, including those who have lived outside of the US for the full tax year and have no US-based source of income.
In some US states, individuals are also required to file a separate return for state taxes. The due dates for these are state-specific. Usually, they fall throughout April-June. This year, 37 states extended their filing deadlines to meet the federal extension until the 17th of May 2021.
Tax Years in Other Countries
Australian Tax Year
Tax years and return deadlines vary around the world. In Australia, the tax year aligns with the financial year from the 1st of July to the 30th of June the next year. Individual tax returns are due by the 31st of October.
French Tax Year
In France, like the US, the tax year is from the 1st of January to the 31st of December. The due date to file an individual tax return is in May or June of the following year. The exact dates change each year and depend on the department you live in.
Hong Kong Tax Year
In Hong Kong, the tax year runs from the 1st of April to the 31st of March the following year and individual tax returns are due by the 3rd of June.
Tax is already a difficult subject without the added complexity of the varying dates! If you want to learn more about tax, expenses and invoicing from the perspective of a freelancer, check out our other articles here.