Have you ever wondered why on earth our tax year runs from April 6 to April 5 – it is such an odd date, not even a month end.
As ever, it’s all down to our long history. Europe had used the Julian calendar since its introduction by Julius Caesar in 42BC, and although it was reasonably accurate, it differed from the solar calendar by 11 and a half minutes per annum.
Not a big problem to start with but after time it became a difference of 10 days and in 1582 Pope Gregory XIII grew tired of the resulting inaccuracies and introduced the Gregorian calendar.
The Gregorian calendar reduced the length of the calendar year from 365.25 days to 365.2425 days, a reduction of 10 minutes 48 seconds per annum. This ensured Pope Gregory’s calendar was a more accurate timekeeper and it was introduced in Italy, Spain, Portugal, Poland and Lithuania.
It was not introduced into Britain until 1752 by which time the British calendar was 11 days adrift of Europe.
On the old British calendar, the tax year began on March 25, the old New Year’s Day (around the time of the spring equinox). The tax year starting on March 25, 1752 was extended to 365 days plus the extra 11 days, giving an end date of April 4, 1753.
Time passed smoothly and accurately until 1800, which was not a leap year in the new Gregorian calendar but would have been in the old Julian system.
The Treasury moved the start of the tax year from the April 5 to 6 and it has remained there ever since.
It is probably not a bad thing that the date falls away from other major deadlines.
Can you imagine if it was December 31? Last minute ISA and pension contributions in the middle of the Christmas holiday period would cause chaos with the holiday plans of the Financial Services industry.
That leads me onto another mystery – why do savers always leave it to the end of the tax year before making their ISA and pension contributions?
Surely it makes more sense to do it at the beginning, immediately after April 6 so that the investment has a whole year of tax free growth.
Maybe it’s because many of us don’t get round to doing things until the last minute, before it’s too late. But if you think about it, do it early.
In 2014/15 tax year the ISA limit is increased to £11,880 from April 6.
However, last week’s budget has increased the annual limit to £15,000, but the extra £3,120 cannot be paid until July 2014.
So, will you invest in April and top up in July, or wait until July and do the whole £15,000 then?
Or, will it be another mad panic at the tax year end on April 5, 2015?
If you have got the funds, get in early.
* Trevor Law is a director with Merito Financial Services, chartered financial planners, based in Solihull.