Business & Personal Tax Made Simple Glossary of Accounting Terms
Omega2accounting endeavour to explain all tax matters in plain and simple language. However, we understand that the tax system can appear complicated and have produced a glossary of accounting terms to make the process easier to understand. Please also see our frequently asked tax questions section.
Our accounting glossary is in alphabetical order:
Basic Rate
This is the percentage at which the majority of individuals have tax deducted from their income. At present the basic rate of tax is 22% and is applicable to earnings up to £39,825 for the current tax year.
Contractor
An individual providing their services to a company or organisation while not being an employee of that body. Many contractors provide their services through their own Limited Company.
Corporation Tax
A tax payable on the profits of a company. For most businesses this is payable nine months after the end of their trading year. The standard rate of Corporation Tax is 19%.
Dividends
The payments made to a company's shareholders from its net profits. Dividends are taxed at different rates to normal income.
Employee
An individual who works for a company rather than on their own account or at their own financial risk.
Higher Rate
The percentage at which any earnings above the basic rate are taxed. At present the higher rate of tax is 40%.
Higher Rate Threshold
The amount above which an individual's income is subject to higher rate tax. For the current tax year the higher rate threshold is £39,825.
IFA (Independent Financial Advisor)
An individual providing financial advice and services, most particularly for pensions, insurances and inheritance tax planning. An IFA is not tied to a particular company or product and so will be able to offer advice best suited to an individual's needs.
IR35
The name given to a piece of government legislation addressing tax-avoidance. The legislation aimed to clarify who should be deemed 'employed' for tax purposes and who was a genuine contractor working on their own account.
Limited Company
A corporate structure that enables owners to be personally separated from a company's debts. A Limited Company is an increasingly used model for contractors.
Managed Service Companies (MSCs)
A company formed of multiple workers, each holding a different class of share. The varied share class enabled each worker to receive dividends calculated from their specific income so avoiding the payment of considerable amounts of national insurance. The use of MSCs has been restricted following recent government legislation.
National Insurance Number
A number given to British citizens and foreign nationals permitted to work in the UK. The tax and national insurance paid by an individual is recorded under their national insurance (NI) number.
P11d
A form submitted to HMRC by employers. The form declares any taxable benefits received by an employee (e.g. heath insurance) and also any payments made to the employee by way of reimbursed expenses (e.g. travel). The forms must be submitted to HMRC by 5th July following the end of the tax year.
P35
Otherwise known as the Employer Annual Return, this form details every employee of a company and the amounts of PAYE and NIC payable to HMRC by the employer. The form must be submitted to HMRC no later than 19th May following the end of the tax year.
PAYE
This stands for Pay As You Earn and is a method of deducting tax from an individual's salary on a monthly basis. Tax is deducted on the basis of an individual's tax code.
Payroll
The deduction of tax and national insurance from gross salaries and the payment of employees. The term can also refer to the number of paid employees or staff at a particular company or workplace.
Personal Allowance
The UK tax system allows each individual to earn a certain amount per year that is not subject to tax. This amount is known as the personal allowance and varies from year to year. For the 2007/8 tax year the standard personal allowance is £5,225.
Self-Assessment Tax Return
Self-Employment / Sole Trader
Where an individual is in business on their own account outside of a corporate structure and at financial risk to themselves personally.
Tax code
UK tax codes indicates how much tax should be deducted from an individual's earnings and, in the majority of cases, how much they can receive by way of a tax-free sum.
Taxed At Source
The majority of individuals have tax deducted from their earnings prior to it being paid to them. For example, employment income is paid after tax has been deducted. This is known as 'Taxed at Source'. In some instances income is taxed at source on the basic rate of tax though additional tax may be payable if the taxpayer is subject to higher-rate tax. This is often the case with bank interest and also dividend income.
Tax Year
The UK tax year runs from 6th April to 5th April the following year. The tax year ending 5th April 2008 is known as the 2007 / 2008 tax year.
Unique Tax Reference
The Unique Tax Reference, or UTR, is a ten digit reference number, specific to an individual and used for personal tax purposes. The number is printed on tax returns and other self-assessment related correspondence. The UTR is needed to apply for online filing of a personal tax return.
VAT (Value Added Tax)
A tax applied to the majority of goods and services. This can be reclaimed by businesses and sole traders on expenses incurred in performing their services.
