Institute calls on government to consider January-December tax year

The CIOT makes the call in its response to an HMRC consultation¹ on simplifying the taxation of offshore interest. The CIOT has supported HMRC’s efforts to address the complexities of the current system, but said that aligning the UK tax year² to the calendar year would be a better overall solution.

In its response,³ the Institute also suggests that the proposed changes should apply to all overseas investment income reported under automatic exchange of information agreements, not just interest.

Margaret Curran, CIOT Technical Officer for the Management of Taxes Committee, said:

“We welcome HMRC’s focus on simplifying the taxation of offshore interest, which can be a source of confusion for many taxpayers, as well as creating problems for HMRC’s compliance activity⁴. Aligning the assessment period for offshore interest to the calendar year could mitigate issues caused by mismatches between the UK tax year and the calendar year reporting used by many countries.

However, we believe an even better solution would be to align the UK tax year to the calendar year. This would bring many benefits including better understanding by taxpayers and greater alignment with other countries, although we recognise that the transitional period would require careful management.”

On the specific proposal to change the assessment period for offshore interest, the CIOT has proposed several recommendations to improve the process for both taxpayers and HMRC including:

• Keeping the technical details simple to avoid creating a complex system with numerous exceptions and transitional rules.
• Emphasising the importance of clear communication and guidance to ensure taxpayers understand any changes to the assessment period and their reporting obligations.
• Striking the right balance between flexibility and simplicity in reporting requirements.

Margaret Curran concluded:

“We encourage HMRC to consider planned changes such as Making Tax Digital (MTD) and how they will integrate with any new reporting requirements for offshore income. We look forward to working with HMRC to make the tax system simpler and more efficient”.

_{Noted for editors:}

_{1. The consultation explores whether the assessing period for offshore interest might be changed to a calendar year basis rather than the existing tax year (5 April) basis, so that interest taxable in a UK tax year would be the amount received in the calendar year ending in that tax year.}

_{2. A UK tax year runs from 6 April to the following 5 April.}

_{3. https://www.tax.org.uk/ref1403}

_{4. The current tax year basis of assessment can cause problems because HMRC usually receive details of offshore investment income on a calendar year basis under automatic exchange of information agreements, and individuals will often receive details on a calendar year basis as well.}