HM Revenue & Customs (HMRC) has published a summary of responses to its consultation on simplifying the taxation of offshore interest. However, the UK government has confirmed that it will not put forward any formal proposals at this stage.

The consultation examined the practical difficulties caused by the mismatch between the UK tax year and the calendar year used by most overseas jurisdictions and international automatic exchange of information arrangements.

The timing mismatch

The UK tax year for individuals runs from 6 April to 5 April, while many other countries use the calendar year as their tax year.

Information exchanged between tax authorities under automatic exchange of information arrangements, including the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA), is also commonly reported for the year ending 31 December.

This mismatch can make it difficult for taxpayers to allocate offshore interest accurately to the relevant UK tax year. It may also make it harder for HMRC to verify whether overseas income has been reported correctly.

No consensus on a solution

HMRC received 19 written responses from representative bodies, professional advisers and individual taxpayers.

Respondents broadly agreed that the difference between the UK tax year and the calendar year creates administrative and compliance difficulties. However, no clear consensus emerged on how the issue should be addressed.

The concerns raised included:

  • the risk of income being reported twice;
  • potential interactions with the foreign income and gains (FIG) regime;
  • difficulties associated with currency conversion;
  • the need for any simplification measure to cover all types of offshore income, rather than offshore interest alone.

Government will continue to consider the issue

The government has confirmed that no formal proposals will be introduced following the consultation, citing the lack of consensus and the range of technical and practical issues identified by respondents.

HMRC has nevertheless indicated that it will continue to consider possible approaches in this area.

A broader proposal to align the UK tax year with the calendar year was not considered as part of the consultation. A 2021 report by the Office of Tax Simplification previously concluded that changing the UK tax year-end date would involve significant costs and disruption.