Tax and business accounting takes quite a while to get your head around, but then there is all of the terminology which comes with it. Finance is full of complicated terms, jargon and acronyms, so we have pulled together a tax-related A-Z of terms and phrases so you’ll never be left confused again.
Accounting Software – A programme which allows you to keep track of business accounts and often works out tax/payments due automatically. Used by accountants and part of the Making Tax Digital scheme
Active – The way HMRC refers to a company who are trading and liable to pay taxes
Agent – Somebody you can appoint to deal with HMRC on your behalf. Usually an advisor or accountant
Allowance – The amount you are allowed to earn/receive before tax is charged
Appeal – If you think a decision which HMRC has made is wrong, such as a payment amount, you can appeal it
Assets – Any property, item or goods owned by a business which add value to the accounts. You will pay Capital Gains Tax when these assets change hands
Audit – The process of checking over the company accounts to ensure they are balanced and correct
Auto Enrolment – Any employees must automatically be enrolled to a pension scheme, even if they want to drop out at a later date
Balance Sheet – A form of accounting/bookkeeping which shows the assets, liabilities, and capital of the business. Includes income and outgoings to ensure everything balances
Bookkeeping – A broad term referring to accounting ‘books’, where financial transactions are kept on record. It can be kept in house or outsourced to an accountant, and is best done online
Capital Gains Tax – Tax charged on the money made of the disposal or sale of an asset
Class 2 Contributions – A form of National Insurance paid by self-employed individuals. A fixed weekly amount non-dependent on income
Class 4 Contributions – Second form of National Insurance for the self-employed. This rate is dependent on the income and taxable profit of your business
Cloud Accounting – If you undertake online bookkeeping with accounting software, the data will likely be stored on the ‘cloud’. This stores everything safely and allows for access from anywhere
Corporation Tax – A charge paid by limited companies on their taxable profits
Determination – If you do not send back your tax return, the government will work out an estimate of what you know and you will also be fined
Dormant – The opposite of ‘active’. A limited company that is not liable to pay tax for some reason, such as if they aren’t currently trading
Entrepreneurs Relief – A lower rate of Capital Gains Tax which eligible people may be entitled to pay when disposing of or closing down their business
Flat Rate VAT – A scheme available for smaller businesses if they meet certain criteria. This rate currently stands at 16.5%
HMRC – HM Revenue & Customs. The part of the government who deals with tax and financial obligations such as National Insurance contributions
Income – Money you obtain from work you undertake or services you provide
Income Tax – Paid on any income which exceeds your ‘personal allowance’
Input Tax – The VAT which you charge other businesses or customers when they buy goods or services from you. This is retained by you until it is passed over to HMRC
Inspection – A tax inspection will be arranged by HMRC if they suspect poor bookkeeping, to eliminate suspected fraud or evasion
Investments – Items you purchase because you think they will be profitable in the future. Income tax will be charged on any profits or interest you do receive from these
Making Tax Digital – An HMRC scheme to have a fully digitised tax system by 2020. Tax returns and bookkeeping will be sent to HMRC more regularly to eliminate possible issues
National Insurance Contributions – You pay NI if you are over 16 and earn over £162 a week or are self-employed and making a profit of £6,205. It builds up your entitlement to certain state benefits
Output Tax – The VAT other businesses charge you based on the good or services you buy
Pay As You Earn – PAYE. The method of paying employee wages or director income. Through this, the collection and payment of income tax and National Insurance is taken
Payroll – List of employees of a company who receive wages or salaries. From this, PAYE data is formed
Personal Allowance – The amount you are allowed to earn before you begin paying tax on earnings. It currently stands at £11,805
Rebate – A form of tax saving. You will either be able to avoid paying tax on certain goods and services, or be able to claim it back
Self Assessment – If you are self-employed or have completed freelance work, you will need to submit a self assessment form. This calculates all earnings and tax due
Self Employed – Somebody who works for themselves/sets up their own business as opposed to being employed. Anybody earning over £1,000 from extra work must register as self employed
Tax-Free – Certain products are charged at a 0% tax rate as opposed to 20%. This includes children’s clothing or newspapers. Also known as non-taxable or exempt
Tax Year – Falls from 6 April in one year to the following 5 April. Often written as “2019/2020 tax year”
Unique Taxpayer Reference – Everyone registered as self-employed is issued with a UTR
VAT – Value Added Tax. Paid on almost everything we buy. Businesses need to register for VAT if they have a turnable profit over £85,000, but can also voluntarily register below this
Year End – The end of the annual accounting period for businesses. It falls on the anniversary of the month the company was set up
