Tax and accounting glossary

Plain-English explanations of the terms you'll come across in UK tax and accounting.

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Accounting period — the period a company's accounts cover, usually 12 months.
Accruals — costs you've had the benefit of but not yet been billed for, included in the accounts for the right period.
Annual Investment Allowance (AIA) — lets businesses deduct the full cost of most equipment and machinery from profits in the year they buy it.

Balance sheet — a snapshot of what a business owns and owes on a particular date.
Balancing payment — the Self Assessment tax still due for a year after your payments on account, payable by 31 January.
Benefit in kind — a perk from an employer, such as a company car or medical insurance, that is taxed like pay.
Business Asset Disposal Relief — a lower capital gains tax rate when you sell all or part of a qualifying business.

Capital allowances — tax relief on equipment, vehicles and other assets a business buys.
Capital gains tax (CGT) — tax on the profit when you sell or give away an asset that has gone up in value.
CIS (Construction Industry Scheme) — rules under which contractors take tax off payments to subcontractors and pass it to HMRC.
Confirmation statement — a yearly statement to Companies House confirming the company's details are up to date.
Corporation tax — tax a limited company pays on its profits.

Director's loan account — a record of money a director takes from or lends to their company, outside salary and dividends.
Dividend — a payment of profits from a company to its shareholders.

Employer's National Insurance — National Insurance a business pays on employees' earnings, on top of their pay.
Employment Allowance — a reduction in some employers' National Insurance bill each year.

Fiscal drag — when frozen tax thresholds mean more of your income is taxed as pay rises.
Flat Rate Scheme — a simpler VAT scheme where small businesses pay a fixed percentage of their turnover.

Gross payment status — lets a CIS subcontractor be paid without tax deducted.

Incorporation — setting up a limited company.
IR35 — rules that decide whether a contractor working through their own company should be taxed like an employee.

Making Tax Digital (MTD) — HMRC's rules requiring digital records and online submissions, including quarterly updates for many sole traders and landlords.
Marginal relief — a reduction in corporation tax for companies with profits between the lower and upper limits.

National Insurance number — your personal reference for National Insurance and state benefits.

P11D — a form reporting employees' benefits in kind to HMRC, being replaced by payrolling benefits.
P60 — a yearly summary of an employee's pay and tax, given by 31 May.
PAYE — Pay As You Earn, the system for taking income tax and National Insurance from pay.
Payments on account — advance payments towards next year's Self Assessment tax bill, due 31 January and 31 July.
Personal allowance — the income you can receive each year before paying income tax.
Profit and loss account — shows a business's income, costs and profit for a period.

Real Time Information (RTI) — reporting payroll to HMRC every time employees are paid.
Registered office — a company's official address on the public register.

Self Assessment — the system for reporting income and paying tax that isn't taken at source, through a yearly tax return.
Sole trader — a self-employed person who runs a business on their own, without a company.
Statutory Sick Pay (SSP) — the minimum sick pay employers must pay eligible employees.

Tax year — runs from 6 April to 5 April the next year.
Trading allowance — up to £1,000 of trading income a year that can be tax-free.

UTR (Unique Taxpayer Reference) — a 10-digit reference HMRC gives you for Self Assessment or your company.

VAT (Value Added Tax) — tax added to most goods and services. Businesses must register once taxable turnover goes over the threshold.
VAT return — a regular report of the VAT you've charged and paid, usually every quarter.

Can't find a term? Ask us — we're happy to explain.