UK tax glossary

What HMRC's jargon actually means, in plain English. Definitions explain the mechanism rather than quoting a threshold or rate, because those are indexed or reset at fiscal events.

Self Assessment

UTR (Unique Taxpayer Reference)

The ten-digit number HMRC uses to identify you for Self Assessment. Issued when you register, and needed on every return and payment. It is not your National Insurance number.

Self Assessment

The system for reporting income HMRC does not already tax at source. Sole traders, landlords and company directors with untaxed income file a return after the tax year ends and pay what is due.

See also: UTR, Payment on account, Balancing payment.

Tax year

The UK tax year runs 6 April to 5 April. A year written 2026/27 starts 6 April 2026 and ends 5 April 2027. Deadlines hang off the end date, not the calendar year.

Payment on account

An advance instalment towards next year's bill, due 31 January and 31 July. Each is normally half of last year's liability. They apply only if your last bill was above a threshold and most of your tax was not collected at source, so check your Self Assessment statement rather than assuming.

See also: Balancing payment, Self Assessment.

Balancing payment

The difference between what you actually owe for a tax year and what you already paid on account. Due 31 January after the tax year ends, at the same time as the first payment on account for the following year.

SA100

The main Self Assessment return form. Supplementary pages cover particular income: SA103 for self-employment, SA105 for property, SA102 for employment.

Time to Pay

An instalment arrangement with HMRC when you cannot pay in full by the deadline. Agreeing one before the due date generally avoids late-payment penalties, though interest still runs.

VAT

VAT registration threshold

The rolling twelve-month taxable turnover above which registration becomes compulsory. It is also tested forward: if you expect to cross it in the next thirty days alone, you must register. The amount is set at fiscal events, so confirm the current figure on GOV.UK.

See also: Taxable turnover, Making Tax Digital.

Taxable turnover

The total of everything you sell that is not VAT exempt or outside the scope. It includes zero-rated sales, which is what catches people out: zero-rated turnover counts towards the registration threshold.

See also: Zero-rated, Exempt, VAT registration threshold.

Zero-rated

Taxable at 0%. You charge no VAT but the sale still counts as taxable turnover, and you can reclaim input VAT on related costs. Most food, books and children's clothing are zero-rated.

See also: Exempt, Outside the scope, Input VAT.

Exempt

Not taxable at all. No VAT is charged, the sale does not count towards the registration threshold, and you generally cannot reclaim input VAT on costs relating to it. Insurance, postage and much education and health provision are exempt.

See also: Zero-rated, Outside the scope.

Outside the scope

Not within the UK VAT system at all, such as most services supplied to a business customer overseas. No VAT, and it does not count towards the registration threshold.

Input VAT

VAT you were charged on business purchases. Reclaimed on your return against output VAT, provided the cost relates to taxable supplies and you hold a valid VAT invoice.

Output VAT

VAT you charged customers on your sales. What you owe HMRC is output VAT less reclaimable input VAT.

Reverse charge

The customer accounts for the VAT instead of the supplier. Applies to many cross-border services, and domestically to construction under the CIS reverse charge. The supplier invoices without VAT and states that the reverse charge applies.

Flat Rate Scheme

A simplification where you pay a fixed percentage of VAT-inclusive turnover instead of tracking input VAT on every purchase. You generally cannot reclaim input VAT except on certain capital assets. Whether it saves money depends on your costs.

See also: Input VAT, Limited cost business.

Limited cost business

A Flat Rate Scheme category for businesses spending very little on goods. It carries a higher flat rate, which usually makes the scheme unattractive for service businesses with few material costs.

Making Tax Digital (MTD)

HMRC's requirement to keep digital records and file through compatible software rather than typing figures into the HMRC website. Already in force for VAT; the Income Tax timetable has been revised more than once, so check the current mandation date for your circumstances.

Digital links

Under MTD, data must move between systems without manual retyping. A formula between spreadsheets or an API call is a digital link; copying a figure across by hand is not.

EC Sales List

A separate declaration of goods supplied to VAT-registered customers in the EU. Since Brexit it applies to Northern Ireland movements of goods under the Northern Ireland Protocol, not to Great Britain.

Income tax and NI

Personal Allowance

The amount of income you can receive before income tax applies. It is withdrawn gradually once income passes a high-income threshold, which creates a band with a much higher effective rate. Confirm the current allowance and taper on GOV.UK.

Taxable profit

Business income less allowable expenses and capital allowances. This is the figure income tax and Class 4 National Insurance are charged on, not your turnover and not the money in your bank.

See also: Allowable expense, Class 4 National Insurance.

Class 2 National Insurance

A flat weekly self-employed contribution that historically built entitlement to the State Pension and some benefits. The treatment changed from April 2024: those with profits above the small profits threshold are treated as having paid it without an actual charge. Check the current position for your profit level.

Class 4 National Insurance

The main self-employed National Insurance charge, calculated on taxable profits between a lower and upper limit, with a smaller rate above the upper limit. Paid through Self Assessment alongside income tax.

See also: Taxable profit, Class 2 National Insurance.

Dividend allowance

An amount of dividend income taxed at 0% before dividend rates apply. It has been reduced repeatedly, so confirm the current figure before planning a salary and dividend split.

Trading allowance

A flat allowance you can deduct from casual or small trading income instead of claiming actual expenses. If your income is below it you may not need to report the trade at all; if above, you choose the allowance or your real expenses, not both.

Scottish rates

Scotland sets its own income tax bands and rates on non-savings, non-dividend income. Residence, not where the work is done, determines whether they apply. National Insurance is unaffected.

Expenses and allowances

Allowable expense

A cost incurred wholly and exclusively for the business. Costs with a private element must be apportioned, and a few categories, notably client entertaining, are never deductible however business-related they feel.

See also: Taxable profit, Simplified expenses.

Capital allowances

Tax relief on assets you buy to keep and use, such as equipment or vehicles. You cannot simply deduct the purchase as an expense; you claim capital allowances against it instead.

See also: Annual Investment Allowance, Writing Down Allowance.

Annual Investment Allowance (AIA)

Lets you deduct the full cost of qualifying plant and machinery in the year of purchase, up to an annual limit. Cars are excluded. Confirm the current limit before relying on it.

See also: Capital allowances, Writing Down Allowance.

Writing Down Allowance (WDA)

Relief for asset cost not covered by AIA, given as a percentage of the remaining pool balance each year. Cars sit in a main or special rate pool depending on their CO2 emissions.

See also: Capital allowances, Annual Investment Allowance.

Simplified expenses

Flat rates you may use instead of working out actual costs, covering business mileage, use of home, and living in your business premises. Optional, and you can mix: flat rate for mileage, actual cost for everything else.

See also: Mileage allowance, Use of home as office.

Mileage allowance

A flat rate per business mile covering running costs, fuel and depreciation. A lower rate applies after a threshold of miles in the year. Claim this or actual vehicle costs, not both, and keep a record of journeys.

Use of home as office

A deduction for working from home, either a flat monthly rate by hours worked or a fair apportionment of actual household costs. The apportioned method needs a defensible basis, usually rooms and time.

See also: Simplified expenses, Allowable expense.

Employment and payroll

Class 1A National Insurance

Employer National Insurance on taxable benefits in kind, such as a company car or private medical cover. Reported on the P11D(b) and paid separately from ordinary payroll NI.

PAYE (Pay As You Earn)

The system for deducting income tax and National Insurance from wages at the point of payment. If you employ anyone, including yourself through your own company, you operate PAYE and report each pay run to HMRC.

RTI (Real Time Information)

Reporting payroll to HMRC on or before each payday rather than once a year. The Full Payment Submission carries pay and deductions; the Employer Payment Summary reports adjustments.

P60

The end-of-year summary of an employee's pay and deductions, given to everyone still employed at 5 April, by 31 May.

P45

The record of pay and tax given to an employee when they leave, so their next employer applies the right tax code.

P11D

The return of taxable benefits in kind provided to employees or directors. Due 6 July after the tax year, with the associated Class 1A employer National Insurance due shortly after.

See also: Benefit in kind, Class 1A National Insurance.

Benefit in kind

Something of value given to an employee or director other than cash, such as a company car, private medical insurance or an interest-free loan. Taxable on the recipient and usually carrying employer National Insurance.

See also: P11D, Class 1A National Insurance.

IR35

Rules testing whether a contractor working through their own company would be an employee if engaged directly. Where they apply, the engagement is taxed broadly as employment. For public sector and medium or large private clients, the client decides the status, not the contractor.

Off-payroll working

The name for the IR35 rules as they operate when the client is responsible for determining status and, where caught, for deducting tax. Small clients are outside these rules, leaving the contractor's own company responsible.

CIS (Construction Industry Scheme)

Contractors deduct tax from payments to subcontractors and pass it to HMRC. Returns are due monthly by the 19th, including a nil return for months with no payments. Deductions count towards the subcontractor's own bill.

Companies

Corporation Tax

Tax on a company's profits. The return is due twelve months after the accounting period ends, but payment is due earlier, nine months and one day after it ends, which catches many first-time directors out.

See also: CT600, Accounting reference date.

CT600

The Corporation Tax return form, filed with accounts and a tax computation.

Accounting reference date (ARD)

The date a company's financial year ends, set by Companies House and initially the anniversary of the month of incorporation. Company filing deadlines are measured from it, which is why they differ from one company to another.

See also: Confirmation statement, Corporation Tax.

Confirmation statement

An annual confirmation to Companies House that the register is correct: officers, registered office, shareholders and people with significant control. Filed even when nothing has changed.

See also: Accounting reference date, PSC.

PSC (Person with Significant Control)

Someone who ultimately owns or controls a company, typically through more than a quarter of the shares or votes. Recorded on the public register and confirmed each year.

Bookkeeping

Cash basis

Recognising income when money arrives and expenses when they are paid. Simpler, and it means you are not taxed on invoices your customer has not yet settled.

Accruals basis

Recognising income when invoiced and expenses when incurred, regardless of when money moves. Also called traditional accounting. Required for companies and for some larger unincorporated businesses.

Double entry

Every transaction is recorded twice, as a debit in one account and an equal credit in another. Because the two sides always match, the books can be proved: total debits equal total credits.

Journal entry

A manual double-entry posting, used for anything that does not arise from an invoice or a payment: depreciation, accruals, corrections and the year-end close.

Trial balance

A list of every account with its balance, debits in one column and credits in the other. If the two totals differ, something is posted one-sided and the accounts are not yet reliable.

Nominal code

The number identifying an account in the chart of accounts. UK charts conventionally group them by range: assets low, then liabilities, capital, income and expenses.

Year-end close

Moving the year's profit or loss out of the income and expense accounts into retained earnings, so the new year starts from zero and the balance sheet carries the result forward.

See also: Journal entry, Retained earnings.

Retained earnings

Accumulated profit kept in the business rather than drawn out. Sits in capital on the balance sheet and grows or shrinks by each year's result at the close.

Reconciliation

Matching your records against an independent source, usually the bank statement, so that anything missing, duplicated or mistyped is found rather than carried into a return.