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Knowing the meaning of Accounting Terms
breaks down complex accounting language into easy-to-understand explanations. Built with both beginners and professionals in mind, it serves as a reliable reference point for UK accounting standards, tax regulations, and everyday financial concepts.
Explore our expertly curated glossary today and gain the clarity you need to make informed financial decisions. With Oxbridge Accountants and Tax Advisors, understanding accounting terminology has never been easier—empowering you to stay compliant, optimise your tax position, and take full control of your finances.
A type of enhanced capital allowance allowing you to deduct 100% of the cost of an asset in the first year. 100% FYA is primarily available for assets related to the Green Transition.
A type of enhanced capital allowance allowing you to deduct 40% of the cost of an asset in the first year. The 40% FYA is particularly useful for sole traders, partnerships and for assets purchased for leasing.
Abridged accounts are a smaller and simpler set of accounts for filing at Companies House. They do not contain the period’s net profit figure, or a breakdown of assets, debtors or creditors.
Mico-entities and small companies can send abridged accounts if all members agree to it.
Accountancy software is generally a cloud-based solution to manage and record the transactions of a business. Some examples are SAGE50, QuicksBooks, Xero and Dext, the modern software providers have installed many intuitive features. These include automatic bank feeds, the ability to include scanned receipts and invoices and chasing for payments. The use of this comprehensive software allows more efficient and accurate management of accounts receivable and payable as well as business forecasting and cash flow.
This is the amount owed from the business to a supplier, i.e. bills to pay. At a period end, this will be included on the business’ balance sheet as a creditor, a liability of monies owed to third parties. It’s important to review this balance and ensure you’re reporting the correct amount and correcting amounts that are no longer payable.
This is the amount owed to the business from customers, i.e. outstanding invoices. At a period end, this will be included on the business’ balance sheet as a debtor, an asset of monies owed to the business. Software includes reports summarising the balances owed to the business, and some give you the ability to chase customers for payment with the push of a button.
An accrual is an accounting adjustment or provision for expenses not yet paid at the accounting period end. It allows the accounts to be prepared under the accruals basis. An accrual may, for example, be the inclusion of a period of electricity costs that have not yet been paid.
The accruals basis means accounting for income and expenditure based on invoice dates rather than cash received and paid. It means reporting financial statement results as if all income was received and paid by the accounting period end reflecting the true financial status.
The Additional Dwellings Supplement is a supplementary tax to the Land and Buildings Transaction Tax in Scotland. It is applied when buying a second or more residential property.
An agent is someone who acts on behalf of a business, for example an accountant. When formally authorised an agent can submit documents and speak to HMRC on behalf of an individual. When your accountant asks for authorisation, you may be sent a code by HMRC for you to share with your accountant, or your accountant may ask you to sign a 64-8 form.
When it comes to capital gains tax, this is the amount of capital gains that can be made per annum before tax is payable. The tax-free amount is changed periodically by HMRC.
The AGM refers to the annual meeting of shareholders. An AGM is an opportunity for shareholders to learn about the business’ finances, decisions, concerns and prospects. It may also involve a vote for a new chairperson.
When we look at accounting for capital expenditure, we are able to claim capital allowances instead of the actual expense. A type of capital allowance is the first year allowance, this allows businesses to deduct the full value of an item in one year. Only certain items are eligible for the first-year allowance.
Articles of association are a mandatory document for limited companies, which set out the rules that the officers of the company must follow. They typically set out how general meetings must be organised, the classes of share making up the share capital of the company and the rights attaching to those shares, how directors must take decisions and rules about how shareholders can sell their shares. The model articles for private companies can be found here.
Assets are resources owned by business and are reported on the balance sheet. Assets include fixed, current and non-current assets.
An audit is an examination of financial statements by an independent organisation. Not all businesses require an audit, they may qualify for an audit exemption depending on level of turnover, value of assets and numbers of employees.
Auto-enrolment relates to employers having to enrol their employees into a workplace pension automatically where eligible. Auto-enrolment was first introduced in 2012 in a phased approach to encourage individuals to invest in their retirement. From April 2019, employers are required to contribute into employee’s pensions at a rate of 3% of qualifying earnings.
The balance sheet is a financial statement to show the value of everything the company owns, is owed and owes to other on the last day of the financial period. The balance sheet shows the business’ worth and overall financial health. A balance sheet is also known as a statement of financial position. A balance sheet must be prepared by all companies and submitted to Companies House.
Benefits in kind are benefits or ‘perks’ that employees and directors receive from their employer which aren’t cash payments included in their salary or wages. These benefits are sometimes taxable and are known as a benefit in kind. Benefits in kind must be reported to HM Revenue & Customs, usually via a P11D. Examples include a company car, medical insurance or an interest-free loan.
Bookkeeping is the regular recording of business income, costs and expenses. It enables the reader to monitor how the business is performing and keep in track of money coming in and out of the business.
Business Asset Disposal Relief is a Capital Gains Tax (CGT) relief that may be available when you sell or dispose of all or part of your business. If you qualify for Business Asset Disposal Relief, your disposal will be taxed at a lower rate of CGT.
Capital allowances are the method for claiming tax relief on the purchase of assets known as ‘plant and machinery’. For tax purposes, the cost of these assets is not deducted from income, but instead capital allowances are claimed. There are various capital allowances available depending on the type of asset purchased.
Capital expenditure is the purchase of large items such as equipment and vehicles. These assets will be used by the business for several years and so are accounted for differently to other expenses.
Capital Gains Tax is tax paid by individuals on the disposal of some assets where a profit is made. This can include selling, gifting and swapping an asset. Not all asset disposals will attract CGT, but it’s important to be aware of this tax.
Capital introduced is where funds are introduced into the business by the business owner, where the business is a sole-trader or partnership.
Cash basis accounting is where businesses include income and expenditure based on payment dates in their accounting and tax return. This is different to accrual accounting which uses invoice dates. Accounts prepared under the cash basis won’t have a balance sheet.
Cashflow refers to the cash in and out of the business, and the business’ ability to meet its liabilities. A business can thrive, or a business can fail as a result of cashflow issues, so it’s important to be aware of this and produce a forecast allowing you to plan your finances.
A chart of accounts is a list of all the accounts you use to record transactions, these will be the accounts that form each line of your profit and loss account and balance sheet. For example, one account could be ‘Insurance’, and you will record all insurance payments against this account.
A close company is generally a limited company that’s under the control of five or fewer participators, or any number if those participators are directors. A participator is someone who influences a business and its finances and will often mean shareholder or investor. For example, a company owned and run by the same person is a close company. A company with five shareholders who are also directors will also be a close company. There may be other legal circumstances that make a business a close company.
Companies House is an agency of the Department for Business and Trade. It incorporates and dissolve companies, and register information that is available to the public, for example company information, filed reports and significant people. Incorporated businesses must file their accounts to Companies House by their filing deadline.
A company, or limited company is a legal entity in its own right. It is separate to those who own, run and manage it.
The term comparative relates to information from a prior period. For example, when looking at reports, you can choose to add a comparative such ad information from the previous year to draw comparisons with the current period being reported.
A confirmation statement is a document which all UK companies must file annually with Companies House. It confirms that the directors, share capital of a company remain the same as the previous year or, if they have changed, sets out the new facts.
The Construction industry Scheme is the system for contractors to deduct money from sub- contractor’s payments and pass it on to HMRC as an advance payment towards the subcontractor’s tax and NI.
Corporation tax is the tax a company pays on profits and chargeable gains from the UK and abroad. This also includes clubs, co-operatives, sports clubs and community groups.
Cost of goods sold (COGS), also known as direct costs, include amounts paid to manufacture and deliver goods to customers. For example, the purchase of raw materials, the purchase of stock for resale, costs to get the stock ready for resale and employee wages. Knowing the true and total cost of goods sold allows businesses to price their products effectively, allowing for a profit margin.
Costs of goods sold can be shown separately from all other expenses so that gross profit can be calculated, before other expenses.
Cost of goods sold is slightly different to cost of sales, which is predominantly used in service businesses.
Cost of sales (COS) are the costs involved in providing a service or product to a customer. This term is usually used by service businesses and will include employee wages and inventory. Reporting cost of sales separately to other expenses allows business to calculate gross profit and a gross profit margin, which is an important metric for businesses.
Cost of sales are slightly different to cost of goods sold, which is predominantly used in goods businesses.
In accounting we often refer to double entry book-keeping, a credit is a term of this, alongside a debit. Credits are recorded on the right of a manual ledger system, and shows an increase in income, a decrease in expenses and assets.
Creditors are a type of liability, which are the amounts owed from the business to a person or business. Creditors can include accounts payable, or trade creditors as well as other creditors.
Cryptoassets (often called cryptocurrency) are digital tokens which use crytographically secure ledgers such as blockchain to validate transactions. An example of a cryptoasset is bitcoin.
Cost of sales are slightly different to cost of goods sold, which is predominantly used in goods businesses.
Form CT600 is the reference for a company tax return. The form must be completed by all incorporated businesses, and other eligible businesses to report financial results and calculate the corporation tax payable.
Current assets are assets that are expected to be used or sold within one financial year. For example, stock purchased and accounts receivable.
In accounting we often refer to double entry book-keeping, a debit is a term of this, alongside a credit. Debits are recorded on the left of a manual ledger system, and shows an increase in expenses, a decrease in income and liabilities.
Debtors are a business asset, they represent the amounts owed from another person or business to you. Debtors can include trade debtors (also know as accounts receivable), as well as other debtors.
Deferred income refers to income received in advance and relates to a later financial period. An example would be receiving income on the last day of your financial year for the next quarter. As this income relates to a later period it should not be included in the profit and loss account for this year, we therefore show it as deferred income. Deferred income is shown as a creditor on the balance sheet.
Deferred tax is an accounting adjustment, it does not represent a physical tax liability. It relates to the amount of income tax payable in future periods in respect of differences between accounting and taxation profits.
Depreciation represents the amount an asset value decreases over time. Depreciation is an accounting entry to include an element of capital expenditure in the profit and loss account. As capital expenditure is show as assets on the balance sheet, we need to reflect the cost of these assets in the profit and loss account and we do this by charging depreciation. The depreciation is calculated taking into account the useful economic life of the asset (how long it’ll be useable) and taking a proportion of the cost to the profit and loss account each year.
Dext is a software that allows users to capture receipts, invoices and record transactions in their accounting software. It used to be known as Receiptbank and came on the scene once businesses started using cloud technology for their accounting reporting requirements and was an add-on service to make accounting recording more efficient. Once an invoice is received, you can take a photo of it and upload it to Dext, which will create the accounting transaction for you to approve and post in your software.
A director is a person who runs and manages the company. Directors have responsibilities and duties, and their main focus is to make decisions in running the company so that it succeeds its goals. There are different types of directors, and this will depend on the business structure. Some businesses are owner managed, this means the shareholder is the director. Other businesses will have more directors, and these may not also be shareholders. Sometimes directors have a particular skill or role, for example a Finance Director (FD), or Chief Executive Officer (CEO).
There are also different types of directors, the main ones being executive directors and non-executive directors. An executive director is responsible for the running of the business, while a non-executive director doesn’t generally get involved in operations, they have an oversight.
A directors’ loan account summarises money taken from the company by a director, that is not salary or dividends. This is therefore a loan to the director that must be repaid, as the company and director are separate legal entities.
A directors’ report is a report in the financial statements that include confirmation of who the directors were in the financial period, all companies must prepare the statement. Other information is required for some companies.
A dividend is a distribution of company earnings to shareholders. They are often paid once or twice a year, known as a interim and final dividend. Statutory paperwork such as a dividend voucher must also be prepared. Dividends are usually paid at a rate per share.
Dividend allowance is an annual allowance tax-free allowance. You can receive dividends up to the value of the allowance – £500 for 2025/2026 – before you pay income tax.
A company with no significant transactions in the financial year may be dormant. For example, a business that is not trading and doesn’t have any other income (I.e. investments) will have no significant transactions. A dormant company must still complete annual accounts and a confirmation statement but may not be required to submit a corporation tax return.
This is reference to the way bookkeeping is accounted for, and states that there are two sides to every transaction. For example the receipt of an invoice both increases your bank balance and reduces your accounts receivable balance.
Money withdrawn from a business by the business owner is known as drawings. This relates to sole-traders and partners, ‘drawings’ from a limited company will likely be disclosed as a directors’ loan. Drawings can include monthly drawings which are regular amounts paid to the owners, as well as other drawings which may include where the business is paying for personal services such as life insurance or a mobile phone contract.
Employment related securities or ERS are shares, share options and other securities which an employee receives because of their job. They are usually taxable and must be reported to HMRC by the employer on an ERS return.
The Enterprise Investment Scheme / EIS is a venture capital scheme designed to help smaller companies raise funds through investment. The scheme offers tax incentives to those investing in new shares in an EIS eligible company. As with most investments there are risks so you should speak to a professional before investing.
Equity is the investment in the company by its owner as a shareholder. Equity is equal to assets less liabilities.
A failure to notify penalty is issued by HMRC when you do not tell them about specific circumstances within specific time limits that can affect your tax liabilities.
Filleted accounts are an option for small companies to send less detail to Companies House when filing the accounts. Filleted accounts do not include a profit and loss account, or a directors’ report.
Assets acquired that have a value and a useful economic life for more than one financial period are known as fixed assets. These are not expensed through the profit and loss account but recorded on the balance sheet.
A furnished holiday let is a property based in the UK or European Economic Area (EEA) that is furnished, let on a commercial basis and meets various criteria. Properties that qualify as furnished holiday lets attract different tax reliefs to other rental properties.
A general ledger is a report showing various details of all transactions in the reporting period. A report may be run for the entire accounting year and will list all transactions including date, amount, tax codes and any narrative.
General partners are partners who are responsible for managing the business and have unlimited liability for the partnership’s liabilities.
Going concern is an accounting concept where it is assumed the business will continue to trade for the foreseeable future, deemed to be a period of at least 12 months. Where there are questions and concerns about the ability to trade, a note may need to be presented in the accounts.
Goodwill is an asset that is not tangible, it is often referred to as being the reputation of the business, the client base. When a business is sold, the goodwill it has built up is often considered as part of the cost of the business.
Gross profit is the financial gain the business has made after deducting cost of sales. For example, a business manufacturing goods would deduct the costs to make those goods from turnover to determine the gross profit. Gross profit can be expressed as an amount, and as a percentage known as gross profit margin. Gross profit margin can be calculated by taking gross profit and dividing it by turnover then multiplying it by 100 to arrive at a percentage.
A tax which arises to claw back all or part of Child Benefit when the parent who receives Child Benefit or their partner (if they live in the same household) has adjusted net income of more than £60,000 per year.
HMRC is the UK’s tax, payments and customs authority. They are the authority you submit self-assessment and corporation tax returns to, and they collect money through taxes. HMRC provides targeted financial support to families and individuals.
An income statement is a financial report, also known as a profit and loss account which summarises income and expenses as well as gross and net profit for the period of the report. The income statement is included in the financial statements and submitted to Companies House.
Income tax is paid by individuals on employed, self-employed, property and other taxable income. It can be paid through Pay As You Earn (PAYE) on employment and pension income, or through a self-assessment tax return.
Incorporation is the process of registering a new or existing business as a limited company with Companies House. Once registered, you will receive a certificate of incorporation to confirm the company legally exists.
An Individual Savings Account / ISA is a savings account that offers tax-free investment. There are limits on the amount you can invest in an ISA each year, which are different depending on the type of ISA. Types of ISA include cash, stocks and shares, innovative finance, lifetime and junior.
Inheritance tax is tax paid on the estate of someone who has died. Where the value of someone’s estate is over the tax-free threshold, inheritance tax may be payable at 40%. Furthermore, inheritance tax may be payable on gifts made before death.
Intangible assets are long term resources with no physical presence, i.e. goodwill, reputation and brand. Intangible assets are included on the balance sheet.
Interest relief restriction is a part of the tax code for individual residential landlords. Sole traders can only claim relief on loan interest at basic rate, even if they are higher or additional rate taxpayers.
Inventory is another term for stock. It relates to raw materials for making goods and goods for resale. A valuation should be conducted each year so that the balance sheet shows an accurate value.
A journal is an accounting transaction usually used by an accountant or bookkeeper to record a transaction between two accounts. They are used where the transaction is not a sales invoice or bank payment. For example, a journal may be used to move something that was posted to the wrong account, or to make an accounting entry like the posting of depreciation.
he Land and Buildings Transaction Tax is the Scottish equivalent of SDLT, which is a tax on transactions involving purchasing land.
The Land Transaction Tax is the Welsh equivalent of SDLT, which is a tax on transactions involving purchasing land.
All amounts owed by the company, including accounts payable and loans are liabilities. They are presented on the balance sheet.
When a business registers with Companies House it becomes a limited company. The limited element means that the company is limited by shares or by guarantee. A limited company is a separate entity to its owners and the people running the company. This business structure therefore offers financial security to the owners who are not liable for the company’s debts.
Limited liability in the context of business finance refers to exposure to risk and liability. For example, if a business were to fail would you be liable to the debts of the business? Limited liability means that your exposure would be limited – usually to the amount you have invested. Some business structures mean individuals have limited liability; these include limited companies and limited partnerships.
A limited liability partnership is a type of partnership. Unlike a partnership an LLP is incorporated with Companies House and must submit accounts annually. An LLP is not required to pay corporation tax, instead the profits are distributed to members and reported to HMRC via self-assessment. An LLP differs to a partnership and the main benefit is that it offers partners protection to liabilities.
Limited partners do not have control over business decisions or the operations of the business. Their liability is limited to the amount they contributed to the partnership.
A limited partnership is a special type of business partnership that is made up of at least one general partner and one limited partner. These partners may be natural persons or corporate bodies. A limited partnership is not a separate entity from its partners. Scottish limited partnerships are separate legal entities allowing them to hold assets and enter into contracts in their own right. A limited partnership must register with Companies House, like limited companies and limited liability partnerships.
The loans to participator rules govern loans or advances made to participators of close companies. Participators are people who can influence the way a company is run, and are usually its shareholders or investors. The company has to pay a refundable corporation tax charge when it makes a loan under these rules, and it is refunded when the participator repays the loan.This is also known as Section 455 tax (or S455 tax).
Where a business’ costs exceed income, the financial result will be a loss. A new business may have incurred a lot of start-up costs which have contributed to the loss. The growth plan of the business may show how the business is going to improve financial results going forward. A loss in an established business will be a concern and it is important to review and assess the financial results to enable effective decisions.
Making Tax Digital is the Government’s programme to update the UK’s tax system, making it more effective, efficient and easier for taxpayers to get right. The programme requires eligible businesses to keep digital accounting records in compatible software and submit quarterly updates to HMRC.
Marriage Allowance allows someone earning less than their personal allowance to transfer £1,260 of their personal allowance to their spouse or civil partner, saving them up to £252 of income tax. The spouse must be a basic rate taxpayer.
A micro-entity is a very small private limited company with turnover, assets and employees below a certain amount. There are different accounts reporting requirements for micro-entities, small companies and larger companies. It is important to ensure you are correctly classifying your business and complying with regulations.
Multiple Dwelling Relief was a tax relief applying to SDLT which was available in England and Northern Ireland when buying multiple dwellings in a single transaction and it was abolished on 1 June 2024. It should not be confused with Multiple Dwelling Relief for Land Transaction Tax or MDR for LTT, which is a separate relief which remains available in Wales.
Multiple Dwelling Relief for Land Transaction Tax is a tax relief available in Wales when buying a residential property which contains two or more dwellings.
National Insurance (NI) is paid by individuals and businesses to HMRC. NI contributions are paid to qualify individuals for state pension and other benefits. There are several types of national insurance, known as class 1, class 2, class 3 and class 4. The class you pay will depend on your circumstances. For example, an employed individual may pay class 1, whereas a self-employed individual may pay class 2 and 4. Class 3 are voluntary contributions and are usually paid to fill any NI gaps to ensure an individual qualifies for a full state pension.
Net assets are business assets minus liabilities. This is the same as equity, which uses the same calculation. Net assets are important because they show the financial health of the business. A negative net asset balance shows that a company has more liabilities than they can afford and could represent a struggling business.
Net profit is calculated as income less expenses and less tax. It is also known as operating profit and is the last line of the profit and loss account. Net profit is the amount that is distributed to owners. Accounting net profit is different to taxable profits.
Non-current assets are long term investments, fixed assets and intangible assets. They are assets that are not easily converted to cash within a year.
An officer of a company is a company director, a member of the company managing its corporate affairs or another equivalent role. For instance, a company secretary is an officer.
Operating profit is calculated as income less expenses before tax. Operating profit gives business owners a measure of how well the business is running and how efficient the business is.
Overhead costs refer to expenses that are incurred for the running of the business. Examples of overhead costs include electric and gas costs, insurance and other utilities.
A P11D is a form used by employers to report employee’s taxable benefits, that are not included through payroll, to HMRC. A taxable benefit may include the provision of company cars and health insurance. A P11D may be required each year and has a filing deadline of 6th July.
A P11D(b) form must be submitted alongside a P11D to report the Class 1A National Insurance that the employer owes to HMRC. A P11D(b) has a filing deadline of 6th July.
A P45 form is issued by employers to employees when they leave a post. The form confirms the total pay the employee earned and tax paid for the tax year that the employee left in. The form contains part 1 (copy for employee), part 2 (copy for new employer) and part 3 (for completion by new employer).
A P60 form is issued by employers after the end of the tax year to confirm various payroll details. A P60 must be provided to employees by the end of May after the tax year. Employees will find this form is required as evidence, for example when applying for a mortgage or filing a self-assessment tax return.
A partnership is a business owned by two or more people who share responsibility, liability and profits. A partnership does not formally file their accounts, but will complete a partnership tax return. Partners are required to disclose their share of partnership profits on their self-assessment tax return.
PAYE is a system for employers to collect income tax and NI from employment as part of the business’ payroll. The system deducts income tax and NI from an employee’s salary so that employers can pay this over to HMRC on the employee’s behalf.
A PAYE settlement agreement allows businesses to make one annual payment for the tax and NI on minor benefits received by all employees. Businesses can apply to get a PSA online or by post.
Payments on account are the payments for income tax that self-assessment individuals may be required to pay. They are advance payments towards a tax bill. Those with a tax liability of less than £1,000 or where 80% of the tax liability is collected by PAYE are not required to make payments on account. Payments on account are due by 31st January and 31st July and are based on the previous year’s tax liability.
A Person with Significant Control is someone who owns or controls a company, also known as beneficial owners. PSCs must be identified and reported to Companies House, any changes in PSCs should be reported within 14 days. Most PSCs hold more than 25% of shares and voting rights in a company and have the right to appoint or remove the majority of the board of directors.
The personal allowance is the amount an individual can earn before paying income tax. The personal allowance can be affected by the level of income you earn, those with high earnings may not have a personal allowance at all.
Prepayments are an accounting entry included in the financial statements to reflect an adjustment for payments made in advance. So that the accounts are reported on an accruals basis, it is important to report expenses that relate to the financial period, not expenses that are paid in the financial period. For example, insurance costs may be paid at the end of the financial period but relate to a period after the year and so the cost that relates to that later period must be excluded.
Private Residence Relief is the relief against CGT given against your main home. When you sell your main home, you do not have to pay CGT on any gain you make, due to PRR.
The Private Tenancies Act (NI) 2022 is Northern Irish legislation which gives renters a number of additional rights and imposes more obligations on residential landlords. It is the Northern Irish equivalent of the Renters Rights Bills in England.
Profit is the amount that income exceeds expenses. Some accounts show different types of profits, including gross profit, operating profit and net profit. Gross profit is the amount of income left over after the payment of cost of sales, whereas net profit is the amount of income left over after all expenses. Net profit is therefore a lower number.
A profit and loss account is a financial statement that shows turnover and expenses and the profit or loss made in the financial year. A profit and loss account is also known as an income statement. It can be produced through software for any period of time, so a business can monitor financial results on a monthly or quarterly basis. An annual profit and loss account will be included as part of the financial statements.
Qualifying Income is income in any given tax year which must be counted to see whether you need to report your income, expenses and end of year tax return through Making Tax Digital for Income Tax (MTD for IT).
For instance, sole traders and landlords with qualifying income of £50,000 or more must join MTD for IT from 6th April 2026.
QuickBooks is a bookkeeping software provider. As well as their desktop packages they offer Making Tax Digital compliant software to make sure you’re completing your bookkeeping and meeting your tax requirements. QuickBooks offers various software packages to suit all businesses. QuickBooks’ online software features various time-saving features including automatic bank feeds, sending invoice reminders and intuitive software learning to remember previous transactions and pre-populate fields for you.
Real Time Information began in 2014 and is the system by which employers communicate information about employee pay, tax and other deductions via PAYE to HMRC. It replaced a series of forms employers previously sent to HMRC when employees began or left employment and at year end.
Relevant earnings are your UK earned income, used to calculate the maximum amount of pension contributions you can receive tax relief on in any given tax year. It includes your employment income, taxable benefits in kind, statutory payments like sick pay or maternity pay, and self-employment trading income. There is more detail in HMRC’s Pensions Tax Manual here.
A Relevant Legal Entity is a corporate body that owns or controls a UK company, limited liability partnership (LLP), UK Societas, or an eligible Scottish partnership (ESP). It would qualify as a Person with Significant Control (PSC) if it were an individual.
The Renters Right Bill or RRB is a piece of proposed legislation which would abolish ‘no fault’ evictions and fixed term assured tenancies, and impose more obligations on residential landlords. in England. Some of the bill would also apply to Scotland and Wales.
esolutions are formal, legally binding decisions made by companies. They can be made by the directors (a board resolution) or the members (a shareholders’ resolution). The type of resolution required will depend on both company law and the articles of association of the company.
Retained earnings are the accumulated profits not yet distributed by a dividend to business owners. They are profits that have built up over time and represent a measure of business worth.
Salary sacrifice is an agreement between an employer and employee whereby the employee gives up some of their salary in exchange for an employer- provided benefit. A common form of salary sacrifice is pension contributions, where the employer provides the entire pension contribution instead of both parties making contributions, saving the employer and employee national insurance contributions on the foregone salary.
Section 455 tax (S455 tax) is a refundable corporation tax charge on close companies if they make a loan or advance to a participator under the loans to participators rules.
The Seed Enterprise Investment Scheme is a scheme designed to help small start-up companies raise funds through investment. The scheme offers tax incentives to those investing in SEIS eligible companies. As with most investments there are some risks, and SEIS is riskier than EIS, so you should speak to a professional.
Share capital are shares the company has issued. Share capital is recorded on a company’s balance sheet at the nominal value of the shares, so 100 £1 shares will be reported as £100.
A shareholder owns shares in a company. A shareholder who owns all the shares in a company owns the entire company. Where there are more shareholders, they own part of the company in proportion to the number of shares they hold.
A side hustle is the term used for individuals who choose to supplement their income by offering an additional service alongside their main source of income. This could include re-selling goods online or creating goods and selling them. Where individuals have a side hustle that meets the criteria for a trade they should be aware of the tax implications.
A company is classified as a small company when it has turnover, balance sheet total and employees below a certain threshold. A small company is larger than a micro-entity. There are different accounts reporting requirements for micro-entities, small companies and large companies. It is important to ensure you are correctly classifying your business and complying with regulations.
A sole trader is a self-employed individual trading as a business on their own. They are the sole owner of an unincorporated business. Sole traders have control over their business, its assets and net profits. The individual and the business are one and the same, they are not separate entities in the way a shareholder and company are. A shareholder therefore bears all the risks too.
A spousal transfer is the transfer of an asset from one spouse or civil partner to the other. It is not considered a disposal for capital gains purposes and can allow married couples to utilise both of their AEAs before selling assets.
A stakeholder is a person who has an interest and is affected by the business. This can include customers, employees, shareholders and the local community. Businesses must consider their stakeholders as decisions a business make could adversely affect stakeholders and result in repercussions to reputation and even financial results.
Stamp Duty Land Tax (or SDLT) is a tax on transactions involving the purchase of land in England and Northern Ireland. Scotland and Wales have their own equivalent taxes. SDLT is triggered when a contract to acquire an interest in land – such as buying property – is completed.
A statement of financial position is also known as a balance sheet. It is a financial statement to show the value of everything the company owns, is owed and owes to other on the last day of the financial period. The statement of financial position shows the business’ worth and overall financial health. A statement of financial position must be prepared by all companies and submitted to Companies House.What is stock?
Stock is goods bought for resale but unsold at the end of the financial year. It relates to raw materials for making goods and goods for resale. A valuation should be conducted each year so that the balance sheet shows an accurate value. Stock is also known as inventory.
Taxable income is all the types of income that are subject to income tax in the UK. This includes employment income (including benefits in kind), self-employment income, some state benefits, pension income, rental income, income from trusts, dividends and savings interest. HMRC has a full list, alongside a list of non-taxable income here.
A taxable person is someone who is registered for VAT or is required to be registered for VAT. It is an important definition for VAT as a business can only claim back input tax where it is paid or incurred by a taxable person.
Taxable profits are accounting profits that have been adjusted for tax purposes. Adjustments for tax will include the removal of depreciation charges which are replaced with capital allowances. Any other disallowable income and expenses will be removed. Taxable profits are the profits that are subject to tax.
A trial balance is an accounting report of closing account balances at the report date. The trial balance is presented in two columns, one for debits and one for credits. The columns should agree, meaning the report balances. If the report does not balance, there has been an issue with the double entry bookkeeping.
Turnover is a term for sales revenue and income. Turnover is reported on the income statement or profit and loss account. Turnover is often used to classify a business, for example the level of annual turnover is used to determine whether a company is a micro-entity, small or large. Annual turnover is also used to establish whether a business should be registered for VAT.
The set of accounting standards drawn up by the Financial Reporting Council (FRC) and from the Companies Act 2006. Broadly, companies in the UK that a) use the accruals basis for accounting and b) are not listed on a stock exchange will do so under UK GAAP.
A Unique Tax Reference is a reference number given to individuals and companies by HMRC. The reference is required to submit a tax return and will be used in all correspondence, as well as a reference for tax payments.
Unlimited liability in the context of business finance refers to exposure to risk and liability. For example, if a business were to fail would you be liable to the debts of the business? Unlimited liability means that your exposure would be unlimited meaning you are fully liable. Some business structures mean individuals have unlimited liability; these include sole traders and partners of ordinary partnerships.
VAT is tax added to goods and services. A VAT registered business must charge VAT on their sales, this is known as output VAT. A VAT registered business can then recover input VAT on their purchases. Once the VAT period end has passed, a VAT return must be submitted to HMRC which calculates the balance of VAT payable to or repayable from HMRC. A business that is not VAT registered does not charge VAT on their sales and cannot recover VAT on purchases.
The VAT threshold represents the level of taxable turnover at which a business must register for VAT. Taxable turnover means turnover that would be taxable for VAT. Income that would be exempt from VAT is not included in this total. A business must monitor their level of turnover and there are two tests to determine if a company should register for VAT.
A Venture Capital Trust / VCT is a company whose shares trade on the London Stock Exchange. Its goal is to make money by investing in other VCT qualifying private owned companies. By investing in a VCT, you are investing in smaller businesses not listed on the London Stock Exchange. Smaller businesses can grow faster than larger businesses, which may be attractive to investors. Investing in VCTs offers tax incentives and are high risk and you should always consult with a professional before making investments.
Working capital is calculated as assets less liabilities, it gives an indicator of business efficiency and financial health of the business. Good working capital means that your business will be in a better position should any unexpected cash outflows arise.
Writing down allowances are a type of capital allowance applied to plant and machinery. They give tax relief on the value of assets owned. The rate of WDA will depend on the ‘pool’ that the asset has been put in, which is
determined by the type of asset.
Xero is an online bookkeeping software provider. Xero offers Making Tax Digital compliant software to make sure you’re completing your bookkeeping and meeting your tax requirements. Xero offers various software packages to suit all businesses. Xero’s software features various time-saving features including automatic bank feeds, sending invoice reminders and intuitive software learning to remember previous transactions and pre-populate fields for you.
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