There are fears that without rigorous “transitional provisions”, the first year in which the dates are changed could result in overlaps causing state pension payouts to be miscalculated, underpayments or overpayments of salaries and double tax bills.
This could in turn result in families technically failing the means tests for benefits, despite no change in their circumstances. National Insurance contributions, which determine entitlement to state pension and other state handouts, could also fail to be counted into the system.
The report said the DWP, responsible for paying retirement income and other benefits to 20 million people, was at particularly high risk and said its systems would need thorough testing before any changeover.
Nimesh Shah of accountants Blick Rothenberg said the move would make the tax system more efficient but said state departments had a huge task trying to avoid a “Millennium bug” situation when the “switch is flipped”, a reference to fears computer systems programmed before the 1990s would not be able to cope with numeric reset to a new century in the year 2000.
“There will also need to be a massive communication push and there will be a cost to businesses of changing their own systems and processes as well, “ he said.
The April 5 year-end originates from the practice of paying rents to landlords on “quarter days”: March 25, June 24, Sept 29 and Dec 25. The first in the year, known as Lady Day, came to be regarded as the start of the financial year.
Many businesses wilfully ignore the first five days of the spring month in their reporting to HMRC, a common practice tolerated by the tax authority which collects the unpaid amounts in the following year.
The Government already makes up its own accounts to the end of March and the corporation tax system is set up with a March 31 year end. However income tax, capital gains tax and inheritance tax are built around the current April 5 end date. Legislation would be required to accommodate a switch, the OTS said.
It suggested the change could be implemented in 2023, when new rules will mean nearly 10 million freelancers and landlords with turnover of more than £10,000 will be forced to make digital reports to HMRC each quarter.
A Government spokesman said: “We keep all aspects of tax policy and administration under review.”