The Dead Simple Accounting Glossary
Ever read something from HMRC and thought “what does that even mean?” You’re not alone. Tax is riddled with acronyms, technical terms, and phrases that seem designed to confuse. This glossary breaks it all down. Plain English explanations of the stuff you actually need to understand.
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Accountant
The short version: An accountant handles the numbers so you don’t have to. They file your tax return, help you claim expenses, and make sure you’re not paying more tax than you should. Do I actually need one? If you’re employed and your tax is sorted through PAYE, probably not. Your employer handles it. But … Read more
Accounting Software
The short version: Accounting software keeps track of your money in and out. It can send invoices, categorise expenses, and help you file tax returns and VAT submissions to HMRC. Do I need it? If you’re VAT registered, yes. Making Tax Digital rules mean you have to use HMRC recognised software to submit your VAT … Read more
Additional Rate Tax
The short version: The additional rate is the highest Income Tax band in the UK. If you earn over £125,140, you pay 45% on everything above that threshold. How does Income Tax work? You don’t pay one flat rate on everything. It’s split into bands. The first £12,570 is tax free (your Personal Allowance). From … Read more
Adjusted Net Income
The short version: Your adjusted net income is your total taxable income minus things like pension contributions and Gift Aid donations. HMRC uses this figure to work out if you need to pay back Child Benefit or if you’ve lost your Personal Allowance. Why does it matter? A few key thresholds kick in based on … Read more
Annual Investment Allowance
The short version: The Annual Investment Allowance (AIA) lets you deduct the full cost of certain business equipment from your profits in the year you buy it. Less taxable profit means a smaller tax bill. What can I claim for? Most equipment you buy for your business qualifies: computers, tools, machinery, office furniture, vans. The … Read more
Auto Enrolment
The short version: Auto enrolment means your employer has to put you into a workplace pension automatically. You contribute, they contribute, and the government adds tax relief on top. Who gets auto enrolled? If you’re employed, over 22, earning more than £10,000 a year, and working in the UK, your employer must enrol you. You … Read more
Autumn Budget
The short version: The Autumn Budget is when the Chancellor stands up in Parliament and announces changes to taxes, spending, and anything else that affects your money. It usually happens in October or November. Why should I care? Because it can change what you pay in tax, what you can claim, and what reliefs are … Read more
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BACS Payment
The short version: BACS stands for Bankers Automated Clearing System. It’s how money moves electronically between UK bank accounts. Your salary probably arrives this way, and you can use it to pay your tax bill too. What’s it used for? Regular payments like salaries, pensions, benefits, and subscriptions all go through BACS. If you see … Read more
BADR
The short version: BADR (Business Asset Disposal Relief) is a tax break that cuts your Capital Gains Tax rate from up to 20% down to 10% when you sell your business or shares. It used to be called Entrepreneurs’ Relief. How much can you save? You’ve got a lifetime limit of £1 million in qualifying … Read more
Balancing Charge
The short version: A balancing charge is what happens when you claimed tax relief on business equipment and then sell it for more than its written down value. HMRC adds the difference back to your profits. Wait, how does that work? Say you bought a laptop for £2,000 and claimed the full amount through the … Read more
Balancing Payment
The short version: A balancing payment is the extra bit you might owe (or be owed) when your actual tax bill doesn’t match what you paid in advance through Payments on Account. What’s Payment on Account? If you’re self employed and owe more than £1,000 in tax, HMRC makes you pay in advance. You pay … Read more
Basic Rate Tax
The short version: Basic rate is 20% Income Tax. You pay it on earnings between £12,571 and £50,270. Below that is your tax free Personal Allowance. Above that, you move into higher rates. How Income Tax bands work Your first £12,570 is tax free. From £12,571 to £50,270 you pay 20%. From £50,271 to £125,140 … Read more
Basis Period
The short version: Your basis period is the 12 month window you use to calculate your taxable profit. For most people, it’s simply the tax year: 6th April to 5th April. Can I choose a different one? You can. Some businesses use 1st April to 31st March (close enough to the tax year that it … Read more
Benefit in Kind
The short version: A benefit in kind is a perk from your employer that isn’t cash. Think company car, private health insurance, or gym membership. Most of them are taxable. Why are they taxed? HMRC doesn’t want people dodging Income Tax by taking perks instead of salary. So they tax the value of most benefits … Read more
Bereavement Allowance
The short version: Bereavement Support Payment is money from the government if your spouse or civil partner has died. You can claim a lump sum plus monthly payments for up to 18 months. How much can you get? If you’re getting Child Benefit (or eligible for it), you receive £3,500 upfront plus £350 a month. … Read more
Bitcoin
The short version: Bitcoin is a cryptocurrency. In the UK, HMRC treats it as a taxable asset. If you sell it for a profit, you may owe Capital Gains Tax. If you earn it through mining, that’s Income Tax. When do you pay tax? Selling Bitcoin for more than you paid? That’s a capital gain. … Read more
Blind Person’s Allowance
The short version: The Blind Person’s Allowance gives you an extra £3,070 of tax free income on top of your Personal Allowance. You need to be registered blind or severely sight impaired to claim it. Who qualifies? In England and Wales, you need to be on your local council’s register as blind or severely sight … Read more
Bonds
The short version: A bond is basically a loan you make to a government or company. They pay you interest, and eventually pay back the original amount. It’s a way to invest with (usually) lower risk than shares. How do they work? You buy a bond for a set amount (the principal). The issuer pays … Read more
Brought Forward
The short version: Brought forward means using a loss from a previous tax year against this year’s profits. It reduces your taxable income and therefore your tax bill. How does it work? Imagine you made a £5,000 loss last year and a £40,000 profit this year. You bring forward that £5,000 loss, and you only … Read more
Business Rates
The short version: Business rates are a tax on commercial property. If you work from a shop, office, warehouse, or other non residential premises, you’ll probably need to pay them. Do I pay them if I work from home? Usually not. If you just use a spare room as an office or sell things online, … Read more
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Capital Allowances
The short version: Capital allowances let you claim tax relief on things you buy for your business. Equipment, vehicles, computers, machinery. HMRC treats them as a business expense, which means less tax to pay. If you’re self employed or run a limited company, you can claim capital allowances on assets you actually own. Hired or … Read more
Capital Gain
The short version: A capital gain is the profit you make when you sell something for more than you paid for it. Could be a property, shares, cryptocurrency, a piece of art, or a vintage car. The maths is simple. Take what you sold it for, subtract what you paid. If there’s profit left over, … Read more
Capital Gains Tax
The short version: Capital Gains Tax (CGT) is the tax you pay when you sell an asset for a profit. Property, shares, crypto, valuable personal possessions. Basically anything that’s gone up in value since you bought it. How much will I pay? The rate depends on what you’re selling and which tax band you’re in. … Read more
Capital Gains Tax Allowance
The short version: The Capital Gains Tax allowance is how much profit you can make each year before paying any CGT. Think of it as your tax free buffer. This allowance resets every tax year. If you don’t use it, you lose it. You can’t carry it forward. A few things to remember If you … Read more
Capital Loss
The short version: A capital loss is when you sell something for less than you paid for it. Property, shares, crypto, a car. If you made a loss on the sale, that counts. How does this affect my tax? Losses are actually useful. You can offset a capital loss against any capital gains you’ve made … Read more
Carer’s Allowance
The short version: Carer’s Allowance is a weekly payment you can claim if you care for someone at least 35 hours a week. They don’t have to be a family member. Who can claim? To qualify, you need to earn below a certain weekly amount from other work (after tax, NI and expenses). The exact … Read more
Carry Forward
The short version: Carrying forward means using something from a previous tax year (like a loss or unused allowance) to reduce your tax bill now or in the future. Carrying forward pension allowance There’s a limit to how much you can put into your pension each year and still get tax relief. But if you … Read more
Cash Basis
The short version: Cash basis is an accounting method where you record income when you actually receive the money, and expenses when you actually pay them. Not when you send an invoice or get a bill. It’s popular with self employed people because it’s simpler and you don’t end up paying tax on money you … Read more
CEST Status Tool
The short version: CEST stands for Check Employment Status for Tax. It’s HMRC’s online tool that helps you figure out whether you fall inside or outside IR35 rules. How does it work? You answer a series of multiple choice questions about how you work. Things like whether your client controls your work, whether you could … Read more
CHAPS Payment
The short version: CHAPS (Clearing House Automated Payment System) is a same day payment method used in the UK. It’s often used for large or time sensitive transfers. When would you use it? CHAPS is useful when you need to send a large amount quickly and can’t wait for standard bank transfers. There’s no upper … Read more
Charitable Donations
The short version: When you give money to charity, you might be able to claim tax relief on it. The charity can also claim back tax through Gift Aid, making your donation worth more. How Gift Aid works If you tick the Gift Aid box when donating, the charity can claim basic rate tax on … Read more
Chattel
The short version: A chattel is a physical, moveable personal possession. Think paintings, jewellery, furniture, vehicles, antiques. Anything tangible that you can move from place to place. How is it different from an asset? An asset is anything valuable, whether physical or not. Bitcoin is an asset but not a chattel. A vintage watch is … Read more
Child Benefit
The short version: Child Benefit is a tax free payment for anyone responsible for bringing up a child under 16 (or under 20 if they’re in approved education or training). Only one person can claim per child. How much is it? You get a weekly amount for your first child and a smaller amount for … Read more
CIS Card
The short version: A CIS card proves you’re registered under the Construction Industry Scheme. It shows contractors you’re a registered self employed construction worker and helps you get paid correctly. How does it work? When you’re registered for CIS, contractors deduct tax from your pay before handing it over. The standard deduction is lower if … Read more
CIS Scheme
The short version: The Construction Industry Scheme (CIS) is how HMRC collects tax from self employed construction workers. If you’re a subcontractor in the building trade, this applies to you. Why does it exist? Back in the day, subcontractors were paid cash in hand and HMRC had no way to track what was owed. CIS … Read more
Civil Partnership
The short version: A civil partnership is a legal union between two people. It gives you almost the same rights and responsibilities as marriage, including the same tax treatment. How is it different from marriage? The main differences are procedural. You form a civil partnership by signing a document rather than exchanging vows. It ends … Read more
Class 1 National Insurance
The short version: Class 1 National Insurance is what employees pay. If you’re employed and earn above the threshold, it gets deducted from your wages automatically through PAYE. How much do you pay? There’s a lower earnings limit below which you don’t pay anything. Above that, you pay a percentage of your earnings. The rate … Read more
Class 2 National Insurance
The short version: Class 2 National Insurance used to be a flat weekly amount paid by self employed people. But it’s been scrapped as a compulsory payment. What changed? Self employed people no longer have to pay Class 2. If your profits are above the threshold, you pay Class 4 instead. Below the threshold, you … Read more
Class 3 National Insurance
The short version: Class 3 National Insurance is a voluntary contribution you can make to fill gaps in your NI record. It’s mainly about protecting your State Pension entitlement. Who pays Class 3? Anyone who has gaps in their record and wants to fill them. You might have gaps if you were unemployed, living abroad, … Read more
Class 4 National Insurance
The short version: Class 4 National Insurance is what self employed people pay on their profits. If you earn above the threshold from self employment, you’ll pay Class 4 through your Self Assessment tax return. How much is it? There’s a lower profits limit below which you pay nothing. Above that, you pay a percentage … Read more
Community Investment Tax Relief
The short version: Community Investment Tax Relief (CITR) is a tax break for people who invest in disadvantaged communities through approved organisations called CDFIs (Community Development Finance Institutions). How does it work? If you invest in an approved CDFI (by buying shares, securities, or making a loan), you can claim tax relief spread over five … Read more
Companies House
The short version: Companies House is the government body that keeps track of all limited companies and LLPs in the UK. If you’re running a limited company, you’ll deal with them for registration, annual filings, and changes to your company details. What do they do? They maintain a public register of companies. Anyone can search … Read more
Company Director
The short version: A company director is someone registered at Companies House as responsible for running a limited company. You’re legally responsible for the company’s affairs, including filing accounts and paying the right taxes. What are your responsibilities? Directors have to act in the company’s best interests, avoid conflicts of interest, keep proper records, file … Read more
Company Share Option Plans
The short version: CSOPs (Company Share Option Plans) let employers give employees the option to buy company shares at a fixed price, with tax advantages. Why are they tax efficient? Normally, if your employer gives you shares or lets you buy them cheaply, you pay Income Tax and National Insurance on the benefit. With a … Read more
Compound Interest
The short version: Compound interest is interest earned on interest. When your savings earn interest and that interest gets added to your balance, you start earning interest on the whole lot. Over time, your money grows faster. Why does it matter? The longer you leave money in a savings account or investment, the more compound … Read more
Contractor
The short version: A contractor is someone who provides services to clients, usually businesses, without being their employee. You might work through your own limited company, as a sole trader, or via an umbrella company. How is it different from being employed? Contractors have more freedom. You choose your clients, set your rates, decide when … Read more
Corporation Tax
The short version: Corporation Tax is what limited companies pay on their profits. Unlike sole traders, companies don’t get a Personal Allowance. You pay tax on all your profits. What’s the rate? The rate depends on how much profit your company makes. Smaller profits attract a lower rate, larger profits attract a higher rate, and … Read more
Council Tax
The short version: Council Tax is what you pay to your local council to fund local services. Rubbish collection, street cleaning, libraries, social services. The amount depends on where you live and which valuation band your property falls into. How is it calculated? Every property in England is assigned a band from A to H … Read more
Credit Record
The short version: Your credit record (or credit score) is a number that lenders use to decide whether to lend you money. It’s based on your financial history: how you’ve handled debt, whether you pay bills on time, how much credit you have. Why does it matter? A good credit score makes it easier to … Read more
Crowdfunding
The short version: Crowdfunding is raising money from lots of people, usually through online platforms. It’s popular for starting businesses, funding creative projects, or supporting causes. Types of crowdfunding Donation crowdfunding is where people give money without expecting anything back. Often used by charities. Reward crowdfunding is where backers get something in return, like early … Read more
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Declaration of Trust
The short version: A Declaration of Trust (also called a Deed of Trust) is a legal document that shows how much each joint owner of a property actually owns. It’s commonly used by couples who rent out a property together. Why would you need one? HMRC assumes that couples own property 50/50. That means rental … Read more
Direct Debit
The short version: A Direct Debit is an instruction you give your bank to let a company take money from your account automatically. It’s how most people pay regular bills like utilities, subscriptions, and yes, tax. Can I pay my tax bill by Direct Debit? Yes. You can set up a Direct Debit through your … Read more
Disguised Remuneration
The short version: Disguised remuneration is a tax avoidance scheme where someone receives a “loan” instead of a salary. The loan never gets repaid, and because loans aren’t taxable income, the person avoids paying Income Tax and National Insurance. Why is HMRC cracking down on it? These schemes were widely used by contractors and some … Read more
Dividend Allowance
The short version: The dividend allowance is how much you can earn from dividends each year before paying any tax on them. It’s a tax free chunk that applies before dividend tax kicks in. What’s a dividend? A dividend is a payment made to shareholders from a company’s profits. If you own shares in a … Read more
Dividends
The short version: A dividend is money paid out to shareholders from a company’s profits. If you own shares in a limited company, whether it’s your own business or someone else’s, you might receive dividends. How do dividends work? The company’s directors meet to “declare” a dividend. They decide how much to pay out based … Read more
Double Taxation Agreement
The short version: A Double Taxation Agreement (DTA) is a deal between two countries that stops you getting taxed twice on the same income. The UK has agreements with lots of countries to prevent this. How does it work if you’re a UK resident? If you’re UK resident, HMRC taxes your worldwide income. That includes … Read more
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Employee
The short version: An employee is someone who works for a company under an employment contract. Your employer controls what you do, when you do it, and how you do it. In return, you get things like holiday pay, sick pay, and pension contributions. How do employees pay tax? Most employees pay tax through PAYE … Read more
Enterprise Investment Scheme
The short version: The Enterprise Investment Scheme (EIS) gives you tax relief when you invest in early stage companies. It’s designed to encourage investment in smaller, higher risk businesses that might struggle to raise money otherwise. What tax relief do you get? Income Tax relief lets you claim back a percentage of your investment. Capital … Read more
Enterprise Management Incentive
The short version: An Enterprise Management Incentive (EMI) scheme lets employers give tax advantaged share options to employees. It’s a popular way for startups and small companies to attract and reward staff without paying higher salaries. How do EMI options work? You’re given the option to buy shares at a set price (the strike price) … Read more
Entrepreneurs’ Relief
The short version: Entrepreneurs’ Relief (now called Business Asset Disposal Relief) reduces the Capital Gains Tax you pay when you sell all or part of your business. Instead of paying CGT at the normal rates, you pay a reduced rate on qualifying gains. Who can claim it? You might qualify if you’re a sole trader … Read more
Equity
The short version: Equity means ownership value. In a company, it’s the value of all the shares. In a property, it’s what the place is worth minus any mortgage you still owe. Company equity When you buy shares in a company, you’re buying equity. If the company were wound up and all its assets sold, … Read more
Equity Crowdfunding
The short version: Equity crowdfunding is where you invest in a startup or small business in exchange for shares. Instead of one big investor putting in a lot of money, lots of smaller investors each put in a bit. How does it work? Companies list on platforms like Seedrs or Crowdcube. You browse the opportunities, … Read more
Equity Release
The short version: Equity release lets you access money tied up in your home without selling it. You usually need to be over 55. It’s a way to boost your income or get a lump sum in retirement while still living in your property. How does it work? There are two main types. A lifetime … Read more
Estate
The short version: Your estate is everything you own when you die. Property, savings, investments, possessions, businesses. It’s what gets passed on to the people in your will (or according to intestacy rules if you don’t have one). What counts as part of your estate? Pretty much everything of value. Your home, car, bank accounts, … Read more
Ethereum
The short version: Ethereum is a type of blockchain technology. Ether (ETH) is the cryptocurrency that runs on it. People often use “Ethereum” to mean both, but technically Ethereum is the platform and Ether is the coin. What makes Ethereum different from Bitcoin? Ethereum allows developers to build applications on top of it using smart … Read more
Expat
The short version: An expat is someone living in a country they weren’t born in. If you’ve moved to or from the UK, your tax situation can get complicated because you might owe tax in more than one place. UK tax residence HMRC decides if you’re a UK tax resident based on how many days … Read more
Expenses
The short version: Expenses are costs you can deduct from your income to reduce your tax bill. What you can claim depends on how you earn your money and what the expense was for. Self employment expenses If you’re self employed, you can deduct genuine business costs from your profits. Things like equipment, software, travel, … Read more
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Failure to Notify
The short version: Failure to Notify is a penalty HMRC charges when you don’t tell them about something that affects your tax. New income sources, hitting VAT thresholds, selling a property at a profit. If HMRC should have known and you didn’t tell them, you could face a penalty. What do you need to notify … Read more
Fiscal Year
The short version: The fiscal year (or tax year) in the UK runs from 6th April to 5th April the following year. It’s the period HMRC uses to calculate what you owe. Why those dates? Historical reasons going back centuries. The important thing is knowing that when someone says “the 2024/25 tax year”, they mean … Read more
Flat Rate Expenses
The short version: Flat rate expenses (or simplified expenses) let you claim fixed amounts for certain business costs instead of tracking every receipt. It’s a shortcut that works well for some self employed people. What can you claim flat rates for? Working from home gets you a set amount per month based on how many … Read more
Foreign Tax Credit Relief
The short version: Foreign Tax Credit Relief stops you paying tax twice on the same income. If you’ve already paid tax in another country on money that’s also taxable in the UK, you can usually claim relief so you’re not doubled up. Who can claim it? Mainly UK tax residents who earn money abroad and … Read more
Form 64-8
The short version: Form 64-8 is what you sign to let an accountant or tax agent deal with HMRC on your behalf. Without it, HMRC won’t talk to them about your affairs, no matter how nicely they ask. Why do you need it? HMRC takes data protection seriously. They won’t discuss your tax situation with … Read more
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HCPC Renewal
The short version: HCPC stands for Health and Care Professions Council. If you work in certain healthcare roles, you’re legally required to register with them and renew that registration regularly to keep practising. Who needs to register? The list includes paramedics, radiographers, dieticians, clinical psychologists, social workers, and many other healthcare professionals. If your profession … Read more
HENRY
The short version: HENRY stands for High Earner Not Rich Yet. It describes people with good salaries who still don’t have much wealth saved up. Big income, but not much to show for it. Who counts as a HENRY? Typically someone earning six figures individually, or a household bringing in a combined high income. You … Read more
High Income Child Benefit Charge
The short version: The High Income Child Benefit Charge (HICBC) claws back some or all of your Child Benefit if you or your partner earn above a certain threshold. The more you earn above it, the more you have to pay back. Who has to pay it? If either you or your partner earns above … Read more
Higher Rate Tax
The short version: Higher rate tax is the 40% Income Tax band. You pay it on earnings above the basic rate threshold but below the additional rate threshold. Check gov.uk for the exact figures as they can change. How does it work? UK Income Tax is charged in bands. You don’t pay 40% on everything … Read more
HMRC
The short version: HMRC stands for His Majesty’s Revenue and Customs. They’re the government department that collects taxes, enforces tax laws, and pays out things like tax credits and Child Benefit. What do they do? Collect Income Tax, National Insurance, VAT, Corporation Tax, Stamp Duty, and pretty much every other tax. They also enforce minimum … Read more
HMRC CIS Login
The short version: Your HMRC CIS login gives you access to your Construction Industry Scheme account online. If you’re a contractor or subcontractor in construction, you’ll need it to manage tax deductions and check your records. What do you need before you can log in? First, you need to be registered for CIS. That requires … Read more
HMRC Online Services
The short version: HMRC Online Services is where you manage your tax affairs digitally. File returns, check your tax, make payments, update your details. Most of what you need to do with HMRC can be done here. How do you access it? Through your Government Gateway account. If you don’t have one, you’ll need to … Read more
Home Office Allowance
The short version: The Home Office Allowance is a flat rate you can claim if you’re self employed and work from home. Instead of calculating the exact business proportion of your household bills, you claim a set amount based on the hours you work. How much can you claim? It depends on how many hours … Read more
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Incentive Stock Option
The short version: An Incentive Stock Option lets you buy company shares at a discounted price, often with tax advantages. It’s a way employers reward and retain staff without just paying more salary. What’s the tax benefit? The main advantage is you don’t pay Income Tax or National Insurance when you buy the shares. HMRC … Read more
Income Tax
The short version: Income Tax is the tax you pay on your earnings. Salary, self employment profits, rental income, pension income. If you’re making money, chances are Income Tax applies to some of it. How much do you pay? Everyone gets a Personal Allowance, a chunk of income you don’t pay tax on. Above that, … Read more
Inheritance Tax
The short version: Inheritance Tax (IHT) is charged on what you leave behind when you die. If your estate is worth more than the threshold, the excess gets taxed before it passes to your beneficiaries. When is it payable? There’s a nil rate band, below which no IHT is due. If you’re leaving your home … Read more
Inheritance Tax Allowance
The short version: The Inheritance Tax allowance (or nil rate band) is how much you can leave behind tax free. Estates below this threshold don’t pay IHT. How much is it? The standard nil rate band is set by the government and reviewed periodically. There’s an additional residence nil rate band if you’re leaving your … Read more
Invoice
The short version: An invoice is a bill you send to clients asking them to pay for work you’ve done or goods you’ve supplied. If you’re self employed, you’ll be sending a lot of these. What needs to be on an invoice? Your name and contact details, the client’s details, a unique invoice number, the … Read more
IR35
The short version: IR35 is tax legislation aimed at catching “disguised employees.” People who work like employees but operate through their own company to pay less tax. If IR35 applies to you, you pay roughly the same tax as an employee would. Why does it exist? Contractors working through limited companies can be more tax … Read more
ISA
The short version: An ISA (Individual Savings Account) is a tax free wrapper for your savings and investments. You can put in up to a set amount each tax year, and everything inside grows without you paying tax on it. What types are there? Cash ISAs work like regular savings accounts but the interest is … Read more
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Jobseeker’s Allowance
The short version: Jobseeker’s Allowance (JSA) is a benefit paid to people who are unemployed and looking for work. If you’re out of a job and actively seeking employment, you might be eligible. How do you apply? You apply online. Within about 10 days, the Department for Work and Pensions will let you know if … Read more
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Landlord
The short version: A landlord is someone who owns property and rents it out to tenants. You collect rent, but you also have legal responsibilities around safety, maintenance, and repairs. What are your responsibilities? Gas safety checks every year by a Gas Safe registered engineer. Electrical safety inspections. Smoke alarms on every floor and carbon … Read more
Late Filing Penalty
The short version: If you miss the Self Assessment deadline, HMRC charges a late filing penalty. It starts at £100 even if you owe no tax, and it goes up the longer you leave it. How much are the penalties? Miss the deadline by one day and it’s £100. After three months, HMRC adds daily … Read more
Late Payment Penalty
The short version: If you pay your tax bill late, HMRC charges penalties on top of what you already owe. Plus interest. The longer you wait, the more it costs. How much are the penalties? After 30 days late, you’re charged a percentage of the outstanding tax. After six months, another chunk. After twelve months, … Read more
Lettings Relief
The short version: Lettings Relief is a Capital Gains Tax relief for people who sell a property that was once their main home and was also let out to tenants while they still lived there. When does it apply? You need to have lived in the property as your main home at some point. And … Read more
Limited Company
The short version: A limited company is a separate legal entity from you. It has its own finances, its own tax affairs, and its own liabilities. If the company has debts, your personal assets are generally protected. How is it different from being a sole trader? As a sole trader, you and your business are … Read more
Live-in Landlord
The short version: A live-in landlord (or resident landlord) rents out a room in their own home to a lodger. You share the property with your tenant rather than renting out a separate place. What’s the Rent a Room scheme? If you’re a live-in landlord, you can earn a set amount tax free each year … Read more
Loan Charge
The short version: The Loan Charge is a tax HMRC introduced to tackle disguised remuneration schemes. If you were paid through loans that were never meant to be repaid, HMRC wants the Income Tax and National Insurance that should have been paid at the time. What were these schemes? Instead of paying you a normal … Read more
Locum
The short version: A locum is a temporary worker who fills in for permanent staff, often in healthcare. Doctors, pharmacists, nurses. If you’re working locum shifts, you might be self employed or employed by an agency, and the tax treatment differs. Are locums self employed? It depends. If you’re genuinely freelance, finding your own work, … Read more
LP10 Letter
The short version: An LP10 letter (also called a Lorimer letter) is permission from HMRC that lets your short term employers pay you without deducting tax. It’s useful if you regularly do brief gigs that would normally be PAYE. Why would you need one? Some freelancers work lots of short jobs, maybe just a few … Read more
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Making Tax Digital
The short version: Making Tax Digital (MTD) is the government’s plan to move tax reporting online. Instead of annual paper records, businesses keep digital records and submit updates through compatible software. Who does it affect? It started with VAT registered businesses above a certain turnover threshold. The plan is to extend it to more businesses … Read more
Marginal Tax Rate
The short version: Your marginal tax rate is the rate you pay on your next pound of income. It’s the highest band your earnings reach, not the rate you pay on everything. How does it work? Income Tax is charged in bands. Your first chunk is tax free (the Personal Allowance). The next chunk is … Read more
Marriage Allowance
The short version: Marriage Allowance lets you transfer part of your Personal Allowance to your spouse or civil partner. If one of you earns under the Personal Allowance and the other is a basic rate taxpayer, you could save a few hundred pounds a year. How does it work? The lower earner gives up a … Read more
Married Couple’s Allowance
The short version: Married Couple’s Allowance is a tax reduction for couples where one partner was born before 6th April 1935. It’s different from Marriage Allowance and gives a bigger saving, but only applies to this older age group. How much can you save? The allowance can reduce your tax bill by several hundred pounds … Read more
Maternity Allowance
The short version: Maternity Allowance is a benefit for pregnant women and new mothers who can’t get Statutory Maternity Pay. If you’re self employed, recently stopped working, or don’t qualify for SMP through your employer, this might be for you. Who can claim? You might be eligible if you’re employed but don’t qualify for Statutory … Read more
Mileage Allowance
The short version: Mileage Allowance lets you claim tax relief when you use your own vehicle for work. Instead of tracking actual fuel and running costs, you claim a set amount per mile. How much can you claim? For cars and vans, there’s a rate for your first 10,000 miles in a tax year, then … Read more
Mortgage Interest
The short version: Mortgage interest is what the bank charges you for lending you money to buy a property. If you’re a landlord, how this affects your tax has changed significantly in recent years. How do mortgage rates work? You either have a fixed rate (same payment for a set period) or a variable rate … Read more
Mortgage Interest Restriction
The short version: The mortgage interest restriction limits how much tax relief landlords can claim on their finance costs. It was phased in from 2017 and is now fully in place. What changed? Before, landlords could deduct mortgage interest from rental income like any other expense. A higher rate taxpayer with £10,000 of mortgage interest … Read more
Mortgage Interest Tax Relief
The short version: Mortgage interest tax relief is what landlords can now claim on their finance costs. It’s a 20% tax credit rather than a full deduction, and it replaced the old more generous system. How does it work now? You’re taxed on your total rental income. Then you get a tax credit worth 20% … Read more
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National Insurance
The short version: National Insurance (NI) is a tax you pay on your earnings that goes towards state benefits like the State Pension, Jobseeker’s Allowance, and Maternity Allowance. No contributions, no entitlement. Who pays it? Employees pay it if they earn above a weekly threshold. Self employed people pay it if their profits are above … Read more
National Insurance Number
The short version: Your National Insurance Number (NINo) is your unique identifier for the UK tax and benefits system. It’s two letters, six numbers, and a final letter. Everyone who works or claims benefits in the UK needs one. Where can you find it? On your payslip, P60, P45, or any letters from HMRC about … Read more
Net Income
The short version: Net income is what you actually take home after tax and National Insurance have been deducted. It’s the money that lands in your bank account, not the headline salary figure. How is it different from gross income? Gross income is your total earnings before any deductions. Net income is what’s left after … Read more
Non-deductible
The short version: A non-deductible expense is something you can’t claim against your income to reduce your tax bill. Even if it feels like a business cost, if HMRC doesn’t allow it, you can’t deduct it. What’s the rule? Expenses must be incurred “wholly and exclusively” for business purposes. If there’s any personal element, it’s … Read more
Non-domiciled
The short version: Non-domiciled (or “non-dom”) status applies to people who live in the UK but consider their permanent home to be elsewhere. It used to come with significant tax advantages, but these are being phased out. How did it work? Non-doms could choose to only pay UK tax on money they brought into the … Read more
Non-resident
The short version: A non-resident is someone whose permanent home for tax purposes isn’t in the UK. You might work here temporarily or have income from the UK while living abroad. Non-residents only pay UK tax on UK source income. How do you know if you’re non-resident? HMRC uses the Statutory Residence Test. Key factors … Read more
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Off-payroll
The short version: Off-payroll means getting paid for work without being on an employer’s payroll. Freelancers, contractors, and people working through their own limited companies are all off-payroll. You invoice for your work rather than receiving a salary. Why does it matter for tax? Off-payroll workers typically pay less National Insurance than employees. This makes … Read more
Offsetting
The short version: Offsetting means using losses or credits to reduce what you owe. If you made a loss on one thing and a profit on another, you might be able to offset them so you only pay tax on the net result. Common examples Capital losses can offset capital gains. If you sold two … Read more
Offshore Account
The short version: An offshore account is simply a bank account or investment held in another country. Despite the shady reputation, they’re perfectly legal. What matters is whether you declare the income to HMRC. Do you pay UK tax on offshore accounts? If you’re a UK tax resident, yes. You’re taxed on your worldwide income, … Read more
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P11D
The short version: A P11D is a form that reports expenses and benefits you received from your employer on top of your salary. Things like company cars, private health insurance, or interest free loans. These count as taxable income. Who gets a P11D? If your employer gave you any taxable benefits or expenses during the … Read more
P46
The short version: The P46 was a form used when starting a new job without a P45. It’s been replaced by the Starter Checklist, but you might still hear people refer to it. What was it for? If you couldn’t provide a P45 to your new employer (first job, lost it, or gaps in employment), … Read more
P800
The short version: A P800 is a letter from HMRC telling you that you’ve paid the wrong amount of tax. Good news: you might be due a refund. Bad news: you might owe more. Why would you get one? Common reasons include being on the wrong tax code, having multiple jobs, starting or leaving a … Read more
P87 Claim Form
The short version: A P87 is the form you use to claim tax relief on work expenses if you’re employed, don’t file Self Assessment, and your expenses are under £2,500 a year. What can you claim? Work related expenses that you paid for yourself and weren’t reimbursed by your employer. Things like professional subscriptions, uniforms … Read more
Partnership
The short version: A partnership is a business owned and run by two or more people. Unlike a limited company, there’s no separate legal entity. The partners share the profits and each pay tax on their share. How is it different from a limited company? A partnership doesn’t pay Corporation Tax. Instead, the partnership files … Read more
PAYE
The short version: PAYE (Pay As You Earn) is how employees pay Income Tax and National Insurance. Your employer deducts it from your wages before you receive them, so you never see the money. It just goes straight to HMRC. How does it work? Your employer uses your tax code to work out how much … Read more
PAYE Notice of Coding
The short version: A PAYE Notice of Coding (form P2) is a letter from HMRC telling you your tax code and explaining why you have that code. Your employer uses this code to work out how much tax to deduct. What’s a tax code? It’s a combination of numbers and letters that tells your employer … Read more
Payment on Account
The short version: Payments on Account are advance payments towards your next tax bill. If you’re self employed or have significant untaxed income, HMRC wants you to pay tax in instalments rather than one big lump sum. How does it work? When you file your first Self Assessment and your tax bill is above a … Read more
Payroll
The short version: Payroll is the system employers use to pay staff and handle tax deductions. If you’re on someone’s payroll, you’re an employee receiving regular wages with tax taken off automatically. What does payroll cover? Calculating wages, deducting Income Tax and National Insurance, handling student loan repayments, processing pension contributions, issuing payslips, and reporting … Read more
Payroll Giving
The short version: Payroll Giving lets you donate to charity directly from your salary, before tax is calculated. You get tax relief automatically because the donation comes off your gross pay. How does it work? Your employer deducts the donation amount before calculating your Income Tax (but after National Insurance). So if you’re a basic … Read more
Payslip
The short version: A payslip is the breakdown your employer gives you each time you’re paid. It shows your gross pay, all the deductions, and your take home amount. What’s on a payslip? Your gross pay (before deductions), Income Tax deducted, National Insurance deducted, pension contributions, student loan repayments if applicable, your tax code, your … Read more
Peer-to-Peer Loans
The short version: Peer to peer (P2P) lending is where you lend money directly to individuals or businesses through online platforms, cutting out the bank. You earn interest on the loans, and yes, it’s taxable. How is it taxed? Interest from P2P lending counts as savings income. Basic rate taxpayers get a Personal Savings Allowance … Read more
Pension Annual Allowance
The short version: The Pension Annual Allowance is the maximum you can contribute to your pension each year while still getting tax relief. Go over it and you’ll face a tax charge. How much is it? Check gov.uk for the current figure as it changes. There’s also a lower limit for high earners (the tapered … Read more
Pension Lifetime Allowance
The short version: The Pension Lifetime Allowance used to cap how much you could build up in pension savings tax efficiently. Go over it and you faced a hefty charge. But good news: it’s been abolished. What happened? From April 2024, the lifetime allowance is gone. You can now build up pension savings without worrying … Read more
Pension Triple Lock
The short version: The triple lock is a promise that the State Pension increases each year by whichever is highest: inflation, average wage growth, or 2.5%. It’s meant to protect pensioners’ income. How does it work? Every April, the government looks at the three measures and applies the highest one to the State Pension. In … Read more
Personal Allowance
The short version: The Personal Allowance is the amount you can earn each year before paying any Income Tax. It’s your tax free chunk. Check gov.uk for the current figure. Does everyone get it? Most people do. But once your income goes above a certain threshold, you start losing it. For every £2 you earn … Read more
Personal Independence Payment
The short version: Personal Independence Payment (PIP) is a benefit for people with long term health conditions or disabilities. It helps with extra costs of daily living, regardless of whether you work or have savings. How much do you get? It depends on how your condition affects you, not on what condition you have. There … Read more
Personal Savings Allowance
The short version: The Personal Savings Allowance is how much interest you can earn from savings before paying tax on it. The amount depends on which tax band you’re in. How much do you get? Basic rate taxpayers get a larger allowance than higher rate taxpayers. Additional rate taxpayers don’t get a Personal Savings Allowance … Read more
Personal Tax Account
The short version: Your Personal Tax Account is HMRC’s online portal where you can check your tax, see your National Insurance record, claim refunds, and manage your affairs. It’s like online banking but for tax. What can you do there? Check your tax code and how it’s calculated, see your income from employment, check your … Read more
Personal Tax Return
The short version: A personal tax return (Self Assessment) is how you report income that isn’t taxed automatically. Freelance earnings, rental income, capital gains, dividends above your allowance. If HMRC doesn’t already know about it, you need to tell them. Who needs to file one? Self employed people earning above the trading allowance, landlords with … Read more
Private Residence Relief
The short version: Private Residence Relief means you don’t pay Capital Gains Tax when you sell your main home. As long as you’ve lived in it as your primary residence throughout, any profit is tax free. What are the conditions? It must have been your only or main home for the whole time you owned … Read more
Pro Rata
The short version: Pro rata means proportional. If you work part time, your salary is pro rata of the full time equivalent. If you start mid month, your first pay is pro rata for the days worked. How do you calculate it? Work out the full amount, then multiply by the fraction that applies. A … Read more
Probate
The short version: Probate is the legal process of dealing with someone’s estate after they die. It gives the executor or administrator the authority to access bank accounts, sell property, and distribute assets to beneficiaries. Who handles probate? If there’s a will, it names executors who can apply for probate. If there’s no will, the … Read more
Profit
The short version: Profit is what’s left after you subtract your costs from your income. It’s the number that matters for tax because that’s what HMRC taxes you on. Who talks about profit? Self employed people, landlords, and anyone who sells assets. Employees don’t have profit, they have income. How do you calculate it? For … Read more
Proforma Invoice
The short version: A proforma invoice is a preliminary bill you send before completing work or delivering goods. It shows what you expect to charge, but it’s not a final invoice and doesn’t create a legal obligation to pay. When would you use one? When you’re quoting for work but don’t know the final amount … Read more
Property Income Allowance
The short version: The Property Income Allowance is a £1,000 tax free allowance for rental income. If your rental income is under this amount, you don’t need to tell HMRC or pay tax on it. Who can use it? Anyone with small amounts of rental income. Airbnb hosts with occasional lettings, people renting out driveways … Read more
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Real Time Capital Gains Tax Service
The short version: The Real Time Capital Gains Tax Service is HMRC’s system for reporting and paying CGT on property sales quickly, rather than waiting for your annual Self Assessment. When do you use it? If you sell a residential property (not your main home) at a profit, you must report and pay CGT within … Read more
Reasonable Excuse
The short version: A reasonable excuse is a valid reason HMRC will accept for missing a tax deadline. If you have one, you can appeal against penalties. But HMRC sets a high bar. What counts as reasonable? Serious illness or hospitalisation around the deadline. Bereavement of a close family member. HMRC’s systems being down. Postal … Read more
Relief at Source
The short version: Relief at source is how most personal pensions give you tax relief. You pay in from your after tax income, and the pension provider claims basic rate tax back from HMRC and adds it to your pot. How does it work? If you put £80 into your pension, the provider claims £20 … Read more
Remittance Basis
The short version: The remittance basis was a tax option for non-domiciled UK residents. It meant you only paid UK tax on foreign income if you brought it into the UK. Keep it offshore, no UK tax. What’s the catch? If you claimed the remittance basis, you lost your UK Personal Allowance and CGT allowance. … Read more
Rent a Room Scheme
The short version: The Rent a Room scheme lets you earn up to £7,500 a year tax free from renting out a furnished room in your home. If you stay under that threshold, you don’t even need to tell HMRC. Who can use it? Anyone who lets out furnished accommodation in their main home. It … Read more
Rent to Rent
The short version: Rent to rent is when you rent a property from a landlord, then rent it out to someone else at a higher price. You pocket the difference. It’s legal if you have permission, but it comes with risks. How does it work? You agree a fixed rent with the property owner, often … Read more
Replacement of Domestic Items Relief
The short version: Replacement of Domestic Items Relief lets landlords claim tax relief when they replace furniture, appliances, or other household items in a rental property. It replaced the old Wear and Tear Allowance. What can you claim? The cost of replacing items like sofas, beds, fridges, washing machines, curtains, and carpets. The item must … Read more
Requirement to Correct
The short version: Requirement to Correct was a 2018 deadline for people with undeclared offshore income or assets to come clean with HMRC. Miss it and the penalties were severe. What happened? HMRC gave people until 30th September 2018 to declare any offshore income, gains, or assets they hadn’t previously reported. This was a one … Read more
Resident Landlord
The short version: A resident landlord is someone who rents out part of their own home while living there. Your tenant is technically a lodger, not a tenant with full rights. What are the tax rules? If you earn under £7,500 a year from your lodger, you can use the Rent a Room scheme and … Read more
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SA1
The short version: SA1 is the form you use to register for Self Assessment with HMRC. If you have untaxed income and need to file a tax return, this is where you start. When do you need to register? If you’re self employed and earning above the trading allowance, if you have rental income, if … Read more
SA100
The short version: SA100 is the main Self Assessment tax return form. If you file by paper, this is the core form you fill in. Most people file online now and don’t need to touch the physical form. What’s on it? Your personal details, total income from various sources, tax reliefs you’re claiming, and calculations … Read more
SA101
The short version: SA101 is a supplementary form for less common types of income and tax reliefs. You attach it to your main SA100 if you need to declare things like gilt interest, foreign tax credit, or investment scheme reliefs. When would you use it? If you earned interest from UK government bonds (gilts), want … Read more
SA102
The short version: SA102 is the employment supplementary page. You attach it to your SA100 if you need to tell HMRC more about your employment income, like unreimbursed expenses or if you’re a company director. When do you need it? If you have employment income that wasn’t fully taxed through PAYE, want to claim work … Read more
SA103
The short version: SA103 is the self employment supplementary form. If you’re a sole trader, you use this to report your business income and expenses alongside your main SA100. Which version do you need? SA103S (short) if your turnover is below a certain threshold. SA103F (full) if it’s above. The threshold changes, so check gov.uk … Read more
SA104
The short version: SA104 is the partnership supplementary form. If you’re a partner in a business partnership, you use this to report your share of the partnership’s profits. How does partnership tax work? The partnership itself files a Partnership Tax Return. Then each partner files their own personal Self Assessment including an SA104 showing their … Read more
SA105
The short version: SA105 is the UK property supplementary form. You use it to report rental income from UK properties or furnished holiday lets in the UK and EEA. What goes on it? Your rental income, allowable expenses, and the resulting profit or loss. If you have multiple properties, you usually combine them on one … Read more
SA106
The short version: SA106 is the foreign income supplementary form. You use it to report income from overseas, including foreign employment, rental property abroad, and gains from selling overseas assets. When do you need it? If you’re a UK tax resident with income from abroad that you need to declare. This could be foreign salary, … Read more
SA107
The short version: SA107 is the trusts supplementary form. You use it to report income received from trusts, settlements, or the estate of someone who died. When would you need it? If you’re a beneficiary receiving income from a trust, received distributions from a deceased person’s estate during administration, or have income from a settlement. … Read more
SA108
The short version: SA108 is the capital gains supplementary form. You use it to report profits (or losses) from selling property, shares, crypto, or other assets. When do you need it? If your total gains are above the annual CGT allowance, you sold residential property (which has separate reporting requirements), or you want to report … Read more
SA302
The short version: An SA302 is your tax calculation summary. It shows what you earned and what tax you paid over the past few years. Mortgage lenders often ask for it as proof of income. Why would you need one? Mortgage applications are the main reason. Lenders want to see your income history verified by … Read more
SA303
The short version: SA303 is the form you use to reduce your Payments on Account if you know your income will be lower this year than last. Why would you reduce them? Payments on Account are based on last year’s tax bill. If your income has dropped, you’d be overpaying and waiting for a refund. … Read more
SA370
The short version: SA370 is the form you use to appeal against Self Assessment penalties. If you filed or paid late and think you have a reasonable excuse, this is how you challenge the fine. When can you appeal? If something genuinely beyond your control prevented you from meeting the deadline. Serious illness, bereavement, HMRC … Read more
Salary Sacrifice
The short version: Salary sacrifice is where you give up part of your salary in exchange for a benefit from your employer. You pay less tax and NI because your official salary is lower. What benefits qualify? Pension contributions, cycle to work schemes, ultra low emission cars, and childcare vouchers (for existing members). Most other … Read more
Save As You Earn
The short version: Save As You Earn (SAYE) is a scheme that lets you save money each month and use it to buy shares in your employer at a fixed price. The savings earn tax free interest. How does it work? You agree to save a regular amount (up to a limit) each month for … Read more
Savings Interest
The short version: Savings interest is what the bank pays you for keeping money in a savings account. It’s taxable income, but most people don’t pay tax on it thanks to various allowances. How is it taxed? Banks now pay interest gross (without deducting tax). Whether you owe tax depends on your total income. Basic … Read more
Seafarer’s Earnings Deduction
The short version: Seafarer’s Earnings Deduction lets people who work at sea claim 100% tax relief on their foreign earnings. If you qualify, your seafaring income is completely tax free in the UK. Who qualifies? You need to work on a ship, be outside the UK for long enough (usually at least 365 days), and … Read more
Securities
The short version: Securities is a general term for tradeable financial instruments. Shares, bonds, options, futures. Basically anything you can buy and sell on financial markets. How are they taxed? It depends what you do with them. Dividends from shares are taxed as dividend income. Interest from bonds is taxed as savings income. Profits from … Read more
Seed Enterprise Investment Scheme
The short version: SEIS gives you generous tax relief for investing in early stage startups. It’s one of the most tax efficient investment schemes in the UK, but it’s high risk. What relief do you get? 50% Income Tax relief on your investment (claim it back from HMRC). No Capital Gains Tax if you hold … Read more
Self Assessment
The short version: Self Assessment is how you report untaxed income to HMRC and pay the tax you owe. If you’re self employed, a landlord, or have other income that isn’t taxed at source, you’ll probably need to file one. Who needs to file? Self employed people earning above the trading allowance, landlords with rental … Read more
Self Employed
The short version: Being self employed means you work for yourself rather than an employer. You find your own clients, set your own rates, and handle your own taxes through Self Assessment. Sole trader or limited company? Most self employed people start as sole traders. It’s simpler and cheaper to set up. Limited companies have … Read more
Share Incentive Plan
The short version: A Share Incentive Plan (SIP) lets your employer give you company shares with tax advantages. Keep them in the plan long enough and you won’t pay Income Tax or NI on their value. How does it work? There are several ways to get shares through a SIP. Free shares are given by … Read more
Shareholder
The short version: A shareholder is someone who owns shares in a limited company. You might be a shareholder in your own company, your employer’s company, or public companies you’ve invested in. What rights do shareholders have? It depends on the type of shares, but typically you can vote on major company decisions, receive dividends … Read more
Shares
The short version: Shares (also called stocks) represent ownership in a company. Own shares and you own a piece of that business. You might receive dividends and your shares can go up or down in value. How can you get shares? Buy them through a broker or investment app. Receive them from your employer as … Read more
Side Gig
The short version: A side gig is work you do alongside your main job. Driving for Uber, freelance writing, selling on Etsy. It’s extra income, and yes, it’s taxable. Do you need to tell HMRC? If you earn above the trading allowance from your side gig, you need to register for Self Assessment and file … Read more
Simple Assessment
The short version: Simple Assessment is a letter from HMRC telling you that you owe tax, without you having to file a Self Assessment return. HMRC works it out for you and sends you the bill. Who gets one? Typically people who owe tax but don’t meet the criteria for Self Assessment. Common recipients include … Read more
Simplified Expenses
The short version: Simplified expenses are flat rates you can use instead of calculating actual costs for certain business expenses. They’re designed to make life easier for self employed people. What can you use them for? Working from home (Home Office Allowance based on hours worked), vehicle costs (mileage allowance per mile), and living at … Read more
Social Investment Tax Relief
The short version: Social Investment Tax Relief (SITR) rewards you for investing in social enterprises and charities. You get tax breaks while supporting organisations that make a positive difference. What relief do you get? 30% Income Tax relief on your investment. No CGT on profits from shares (loans don’t qualify for CGT relief). Loss relief … Read more
Sole Trader
The short version: A sole trader is someone who runs their own business as an individual. There’s no legal distinction between you and your business. It’s the simplest way to work for yourself. What do you need to do? Register with HMRC as self employed by 5th October following your first tax year of trading. … Read more
Spring Statement
The short version: The Spring Statement is when the Chancellor updates Parliament on the economy and sometimes announces tax changes. It’s one of two main fiscal events each year, alongside the Autumn Budget. Does it affect you? It can. Sometimes there are changes to tax rates, allowances, or thresholds. Other times it’s mainly economic forecasts … Read more
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Take-home Pay
The short version: Take-home pay is what actually lands in your bank account after all deductions. Your gross salary minus Income Tax, National Insurance, pension contributions, student loan repayments, and anything else that gets taken off. What gets deducted? Income Tax (based on your tax code), National Insurance, pension contributions if you’re in a workplace … Read more
Tax
The short version: Tax is money you pay to the government to fund public services. Roads, schools, hospitals, defence, benefits. Everyone who earns money or buys things contributes in some way. How do you pay it? Employees pay through PAYE, where your employer deducts tax before you receive your wages. Self employed people and those … Read more
Tax Allowance
The short version: A tax allowance is an amount you can earn or receive before tax kicks in. The UK has lots of different allowances for different types of income. Common allowances Personal Allowance lets you earn a certain amount before paying Income Tax. Trading Allowance covers small amounts of self employment income. Property Allowance … Read more
Tax Code
The short version: Your tax code tells your employer how much tax to deduct from your pay. It’s based on your Personal Allowance and any adjustments for things like benefits, untaxed income, or underpaid tax from previous years. What does it look like? Usually a number followed by a letter. The most common is 1257L, … Read more
Tax Deductions
The short version: Tax deductions are expenses you can subtract from your income before calculating tax. They reduce your taxable income, which means you pay less tax. Who can claim them? Self employed people can deduct business expenses. Employees can sometimes claim unreimbursed work expenses. Landlords can deduct property expenses. The rules vary depending on … Read more
Tax Efficiency
The short version: Tax efficiency means arranging your finances to legally pay the least tax possible. Using allowances, reliefs, ISAs, pensions, and structuring things sensibly. What makes something tax efficient? ISAs shelter savings and investments from tax completely. Pensions give you tax relief on contributions. Using your CGT allowance means gains up to that level … Read more
Tax Written Down Value
The short version: Tax written down value is what an asset is worth for tax purposes after you’ve claimed capital allowances on it. It’s the starting point for calculating next year’s writing down allowance. When does it matter? When you’re claiming capital allowances on assets that don’t qualify for the Annual Investment Allowance. Cars are … Read more
Tax-free Income
The short version: Tax-free income is money you receive that you don’t have to pay tax on. Various allowances and exemptions mean some of what you earn stays completely out of HMRC’s reach. What counts as tax-free? Income up to your Personal Allowance. Self employment income up to the Trading Allowance. Rental income up to … Read more
Taxable Income
The short version: Taxable income is the portion of your earnings that actually gets taxed. It’s your total income minus allowances, reliefs, and deductions. What counts as income? Employment income, self employment profits, rental income, pension income, investment income, dividends, savings interest, and most other ways you receive money. Different types of income can be … Read more
Taxpayer
The short version: A taxpayer is anyone who pays tax to the government. If you earn money, buy things, or own property in the UK, you’re almost certainly a taxpayer in some form. Who counts as a UK taxpayer? UK tax residents pay tax on their worldwide income. Non-residents pay UK tax on UK-source income. … Read more
Tenancy in Common
The short version: Tenancy in common is a way of jointly owning property where each owner has a distinct share. Unlike joint tenancy, your share doesn’t automatically pass to the other owner when you die. Why choose it? You might own different proportions (70/30 instead of 50/50). You can leave your share to whoever you … Read more
Theatre Tax Relief
The short version: Theatre Tax Relief is a Corporation Tax relief for companies that produce theatrical performances. It reduces the tax bill for qualifying productions. Who can claim? Theatre production companies that are actively involved in producing, running, and closing shows. You need to be making creative decisions, not just financing someone else’s production. What … Read more
Trading Allowance
The short version: The Trading Allowance lets you earn up to £1,000 from self employment or casual trading without paying tax on it. Below that amount, you don’t even need to tell HMRC. How does it work? If your self employment income is under £1,000, it’s completely tax-free. No registration, no tax return, nothing to … Read more
Traditional Accounting
The short version: Traditional accounting (also called accrual basis) records income when you invoice and expenses when you’re billed, regardless of when money actually changes hands. How is it different from cash basis? Cash basis counts money when it arrives or leaves your account. Traditional accounting counts it when the transaction happens, even if payment … Read more
Tronc
The short version: A tronc is a system for sharing tips among staff in hospitality. Tips are pooled and distributed fairly, often by a designated “troncmaster” who handles the admin. How does it work? Tips, service charges, and gratuities go into a pot. The troncmaster divides them among staff according to agreed rules (usually based … Read more
Trust
The short version: A trust is a legal arrangement where assets are held by trustees for the benefit of beneficiaries. It’s used for protecting assets, managing inheritance, and sometimes tax planning. Who’s involved? The settlor puts assets into the trust. Trustees manage it according to the trust’s rules. Beneficiaries receive the benefit, whether that’s income, … Read more
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Umbrella Company
The short version: An umbrella company employs contractors and freelancers, handling their payroll so they don’t have to set up their own limited company. You’re technically employed by the umbrella, paid through PAYE. Why use one? Less admin than running your own limited company. Taxes are sorted for you. You get employee benefits like holiday … Read more
Unlimited Liability
The short version: Unlimited liability means you’re personally responsible for your business debts. If the business can’t pay what it owes, creditors can come after your personal assets. Who has unlimited liability? Sole traders and partners in ordinary partnerships. There’s no legal separation between you and your business. Your savings, your house, your car could … Read more
UTR Number
The short version: A Unique Taxpayer Reference (UTR) is a 10-digit number HMRC uses to identify you for Self Assessment. You need it to file tax returns and for various dealings with HMRC. How do you get one? Register for Self Assessment and HMRC sends you a UTR by post within a few weeks. Keep … Read more
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VAT
The short version: VAT (Value Added Tax) is a tax added to most goods and services. The standard rate is 20%. Businesses above the registration threshold must charge it and pay it to HMRC. When do you need to register? If your taxable turnover exceeds the VAT threshold (check gov.uk for the current figure), you … Read more
VAT Exempt
The short version: VAT exempt means no VAT is charged on certain goods and services. Different from zero-rated, where VAT is charged at 0%. What’s exempt? Education and training, insurance, finance and credit, health services, fundraising events by charities, and subscriptions to membership organisations. There are others too. Why does it matter? If you only … Read more
Venture Capital Trust
The short version: A Venture Capital Trust (VCT) is an investment fund that puts money into small, early-stage companies. You get tax relief for investing, making it one of the more generous schemes available. What relief do you get? 30% Income Tax relief on what you invest (up to annual limits). Tax-free dividends from the … Read more
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Wage Taxes
The short version: Wage taxes are the taxes deducted from your earnings. In the UK, that mainly means Income Tax and National Insurance, both taken through PAYE if you’re employed. How much do you pay? Income Tax rates depend on how much you earn. There’s a tax-free Personal Allowance, then basic rate, higher rate, and … Read more
Wear and Tear Allowance
The short version: The Wear and Tear Allowance used to let landlords claim 10% of rent as a deduction for furnishing costs. It was scrapped in 2016 and replaced with Replacement of Domestic Items Relief. What changed? Under the old system, you could claim 10% of net rent each year regardless of actual spending. Now … Read more
Welsh Rates of Income Tax
The short version: Since 2019, Wales sets its own Income Tax rates for Welsh taxpayers. Currently they match England’s rates, but the Welsh government can change them. Who pays Welsh rates? People who live in Wales. Your tax code will have a “C” prefix if HMRC considers you a Welsh taxpayer. The residence test is … Read more
Workplace Pension
The short version: A workplace pension is a retirement savings scheme set up by your employer. They contribute, you contribute, and you get tax relief on top. Who gets one? Employers must auto-enrol eligible workers. You qualify if you’re between certain ages, earn above a minimum threshold, and work in the UK. You can opt … Read more
