New Tax Year
Today is the start of the new tax year. To understand the reason for this apparently random date 6th April being the start of the tax year, you have to go back to medieval times.
Until 1582, Europe had used the Julian calendar established by Julius Caesar. Under the Julian calendar, the year had 11 months of 30 or 31 days, with one month, February, consisting usually of 28 days but with 29 every fourth or “leap” year. This had worked well for centuries, but because it did not align exactly with the solar calendar, over time problems developed. By 1752, when it was 11 days out of alignment with the rest of Europe, England finally accepted that it would have to make a change. The decision was made to drop 11 days from the month of September to catch up, and so September 2 was followed by September 14 that year. To ensure that there was no loss of tax revenues, however, the Treasury extended the 1752 tax year by adding on the 11 days at the end. Consequently, the beginning of the 1753 tax year was moved to April 5. In 1800 a further adjustment was made, shifting the start of the tax year forward by one more day to April 6, once again to mitigate for the differences between the Julian and Gregorian calendars. April 6 has remained the beginning of the tax year ever since.
Another oddity is the UK government’s own financial year, which runs from April 1 to the following March 31, and so does not coincide with the tax year. However, the misalignment with Europe (and in fact the rest of the world) on tax years still exists. Most European companies use the calendar year for tax purposes. The USA is also calendar year although a few State tax years are different. 1st July is used by Australia, Pakistan and Thailand with 1st April being used by New Zealand, India, South Africa and Hong Kong. The most random dates (although related to different calendars) are Iran 21st March, Nepal 17th July and Afghanistan 21st December.
The run up to the end of the tax year is the busiest time of the year. We look after around one-third of our customers in January, February and March of each year. Why do people leave it to the end of the year to top up their pension pot? Are there any reasons why you would delay making the contribution?
- Making your pension contribution sooner means that you will benefit from a longer period of investment growth.
- If you are a higher rate tax payer, you can contact HMRC with details of the payment and it will pay you the extra tax relief.
- The earlier you invest the money, the less likely you are to fritter it away.
The only reasons why we can see you would delay payment is if you are not sure of your earnings for the year or not sure whether the money is surplus and therefore can be invested in a pension.
At the start of this tax year, maybe you should think about making this year’s pension contribution.
If you'd like to find out more about the topics in this article or have questions about pensions and tax more generally, please give out team a call on 0300 123 1047 (Monday - Friday 9-5)