GLOSSARY
• We have put together an online tax glossary to help you understand terms that may be unfamiliar and to get tax terms explained in a plain and simple way.
A
Accountant
A professionally qualified individual who prepares accounts for a business. An accountant can also prepare a tax return for you.
Additional Rate Tax
If an individual’s income exceeds £150,000, the individual will be liable to pay tax at the high rate of 50% for everything over and above that threshold
Age-related allowances
Certain additional tax-free allowances apply to those aged 65 and over in the tax year. Allowances may be restricted when total taxable income exceeds limits set for the given tax year. If income exceeds £100,000 then further reductions on the personal allowance will be applicable: £1 for every £2 of income over £100,000
Allowances
Allowances are the standard tax-free limits set by the government – it is reviewed every year. The allowance is given to all UK & Commonwealth citizens and some others who may qualify. The Personal Allowance is given to everyone resident in the United Kingdom. From 6th April 2010 the allowance has been subject to an income limit of £100,000. An individual whose income exceeds that will have the allowance withdrawn at £1 for every £2 of income over £100,000.
The Married Couples Allowance has been restricted to those over 65 at 6th April 2000.
Annual Investment Allowance
The Annual Investment Allowance (AIA) can be used against new equipment (except cars) during a tax year and up to £50,000. If the total cost of all equipment is £50,000 or under, you can claim all of it as your AIA.
Appeals
Appeals procedures are set down by law; disagreements between a taxpayer and the HMRC is be settled by an independent tribunal. There is a right of appeal against HMRC decisions, but the appeal must be made within 30 days of the assessment or amendment. Late appeals are possible and the grounds for the appeal must always be stated. If no agreement is reached at the Upper Tribunal, the appeal will be referred to the General Commissioners and some may be heard by Special Commissioners. Later, it can go to the Court of Appeal and then the Supreme Court
B
Base Rate
The Bank of England sets this standard rate of interest on a monthly basis. It forms the basis of the official interest rate for a given tax year and is used to calculate taxable benefit on low-interest loans from an employer
Basic Rate Tax
The standard payable percentage of tax is 20% (meaning you pay 20p in every £1). The basic rate limit for the current tax year is £34,370. Higher and additional rates of tax at 40% & 50% apply above this rate
Benefits (employment)
When you receive something other than a salary from your employer, they are considered taxable benefits. These could include a company car, medical insurance, and accommodation. Your employer should provide a P11d form at the end of every tax year for you to fill out and declare the taxable benefit of that year. The information is sent to H M Revenue & Customs and must be included on your self-assessment
Blind Person’s Allowance
This is permitted if you are registered blind with a local authority. In Scotland and Northern Ireland, this is not possible, and you simply inform your tax office.
Books
If the costs of books is a necessary expense for the job (and are solely for the business), they can be claimed against taxable income. Employees must also prove that the job could not be carried out without the purchase of said books; this can be difficult to prove. HMRC has a published list of allowable professional journals.
Business
When any trade takes place with the intention of making a profit it is considered a business. At times where profit is made from what could be classed as a hobby, each case is considered on an individual basis
Business Expenses
The outgoings of a business that can be claimed against total income when calculating taxable profits.
Business Income
This is income received by a business that might be taxable. It could be sales or fees and any other sources of income such as investments and capital gains.
C
Cash Equivalent
If an employee receives a taxable company benefit there is no money on which tax may be calculated. Instead, the employer works out the cash value of the benefit received.
Casual Earnings
Defined as the income earned from irregular work.
Certificate of Tax Deposit
There is an option to pay a large tax bill in advance through the purchase from HMRC of Certificates of Tax Deposit. The value of an initial deposit is set at £500 with minimum additions of £250. They can be used against any tax except PAYE, VAT, corporation tax and any tax deducted from payments you have made to contractors.
Civil Partner
An individual as part of a formal civil partnership.
Civil Partnership
A civil partnership is a same-sex couples partnership treated for tax purposes in the same way as a marriage.
Commuting
This is everyday travel to and from a place of work and is not usually tax-deductible. When a workplace is temporarily moved, or a person works from home and travels to various customers, exceptions may sometimes apply.
Company Car
If the employer provides the employee with a car that is also used for private use, this is classed as a taxable benefit.
Construction Industry Scheme
CIS is a tax scheme that regulates payments to subcontractors in the Construction Industry. An individual subcontractor should have a CIS4 Registration Card from the Tax Office; the contractor must deduct tax at source before making a payment – this is presently 20%. All payment and tax deduction details must be recorded on the tax deduction voucher.
D
Debtors
A debtor is simply somebody who owes you money. When preparing accounts, details of these outstanding payments will be shown.
Deductions
These reduce an individual’s total income and consequently their tax liability.
Department for work and pensions
This is the area of government that handles the payment of pensions and state benefits.
Director
The income of a director is treated as any other employee. However, National Insurance and company benefits are handled differently.
Disposals
The loss of an asset which could include gift, theft, swap or loss.
Dividends
Stock or Scrip Dividends: This is where shares are offered in place of a cash dividend.
E
Earned Income
This is the value of money received for work. The term applies to that received from employment, self-employment or directorships.
Elections
This is when individuals have options on how tax affairs are to be organised. An election must take place before the changes can be made. There are several types of election and each has its own rules and time limits.
Emergency tax
If a new employee does not have a P45 from previous employment the new employer will use an “emergency tax code” while the Tax Office organises the correct one. It nearly always results in paying the wrong amount of tax
Emoluments
These are all salaries, fees, wages, perquisites, including benefits in kind and profits whatsoever.
Employee: An individual who works for a business and under contract
Enquiries
HMRC may enquire about your self-assessment tax return up to 12 months from the date they receive your return. If the return is filed late or amended then this period of enquiry is extended to the quarter date following the 12 month anniversary of the filing or amendment. The Quarter Dates are: 31 Jan, 30 April, 31 July or 31 Oct. The enquiry can be about any part of the return.
Estate
This is the total value of a person’s possessions including goods, money and properties. Generally, the term refers to the sum total of the value of possessions of a deceased person.
Exempt Income
An income that is exempt from paying UK tax. Typical examples include: ISA, premium bond winnings, social security benefits (some but not all) and damages for personal injury.
Expenses – Employment
Expenses are deductions that must be wholly, exclusively and necessarily incurred in the performance of the duties of the work. If they meet these criteria, then they qualify for tax relief.
F
First Year Allowances
Capital Allowances (the depreciation on business assets) are a 20% “writing down allowance” of the value of the asset at the beginning of the year.
Foreign Earnings Deduction
When the work of a ‘seafarer’ who is typically resident in the UK is performed partially or fully outside of the UK, a deduction may be made against taxable earnings.
Foreign Income
Income that originates outside of the UK. A resident of the UK is generally charged UK tax on worldwide income.
G
Gift Aid
The Gift Aid scheme covers donations to charitable organisations, permitting them to donate tax-effectively. There is no minimum limit for gift aid payments.
Golden Handshake
The term used to describe a lump-sum payment upon termination of employment. Whether it is taxable depends on whether it is a payment for services or because the job role no longer exists within the organisation.
Guernsey Tax
The income tax system of Guernsey is independent from UK. Guernsey tax refunds were made available to all nationalities from 1st Jan 2004.
H
Higher Rate
A higher tax rate applies when an individual’s income exceeds both personal allowance and basic rate of tax. For 2012/13 tax year this was £42475: anyone earning over this paid tax at the higher rate of 40%. Additionally, there is a 50% rate where income exceeds £150,000
Homeworker employee
This is where tax relief is available to cover additional household expenses where duties central to the role are carried out at home and nowhere else. Payments made by the employer to an employee for this are income tax exempt. No evidence in support of this arrangement is needed for a value up to £3 pw. The employer is obliged to provide supporting evidence for anything larger than this. However, the employee may still be able to make a claim direct to HM Revenue & Customs for homeworking expenses if the employer does not make a payment. The employee may not have the option between working at the employer’s premises or elsewhere
I
Income for Tax Purposes
“Income for tax purposes” is not necessarily the total income as some income is exempt from the payment of tax
Income from Employment
This is salary or wages, company perks, commissions and expenses – any payment made to employees by their employer.
Income Tax
Income tax is paid by individuals on a wide range of income types and at various rates.
Individual Savings Account (ISA)
Introduced in April 1999, it is tax-free savings account with an annual limit on the amount that can be invested.
J
Job Related Accommodation
Where an employer provides accommodation by reason of employment, it will result in a charge of tax against the accommodation benefit.
L
Liability
This is the amount of tax liability due against one’s income, profits or other gains.
Lower Rate Tax
This was a tax rate that applied to the bank and building society interest. It was 20% but has been replaced with 10% the Starting Rate for savings. If non-savings related income is above the limit, then the 10% starting rate will not apply to savings. Interest on your savings will be taxed at 20% (basic rate).
M
Married Couple`s Allowance
This allowance is now only available to those born before 6 April 1935 – this has been the case since 6th April 2000.
Mileage expenses
An employer will not need to pay tax when reimbursing transport costs for business trips: 40p per mile for the first 10,000 business miles and 25p per mile thereafter
At the source: This is when tax is deducted from income before it has been paid to the beneficiary. The most common schemes are: PAYE, Construction Industry Scheme (CIS4-CIS25), Non-resident landlord Scheme (NRL6) and Tax on Interest.
Minimum Wage
National Minimum Wage rates are:
Over 25s: £7.83
Age 21-24: £7.38
Age 18-20: £5.90
Under 18: £4.20
Apprentices: £3.70
N
National Insurance – Class 1
Contributions are based on a percentage of earnings and are paid by employees and their employers. When made by employees they are ‘Primary’ contributions; when made by employers the contributions are ‘Secondary’. If the employee is under 16 years or over pensionable age then primary contributions are not paid.
National Insurance – Class 1A
Are annual payments by an employer against employees’ taxable benefits that are not chargeable to 1 or 1B NI contributions.
National Insurance – Class 1B
This contribution is payable by employers who have a PAYE Settlement Agreement with HMRC.
National Insurance – Class 2
This contribution type is for the self-employed. It is a fixed amount of £2.65 per week and paid directly to the NI Contributions Office. If profits are below a certain limit (£5595 for 2012/13) then the individual is exempt from paying the contribution
No contributions are payable if the individual is 16 years or over pensionable age at the start of a tax year.
National Insurance – Class 3
This is a voluntary contribution paid by those who would otherwise not pay enough in contributions to cover the full pension. Present weekly rate is £13.25.
National Insurance – Class 4
This rate is paid by a self-employed individual and based on a percentage of their profits over and above a £7605 lower limit. The contribution is payable to HMRC through self-assessment. No contributions are payable if the individual is 16 years or over pensionable age at the start of a tax year.
O
Occupational Pension
This is a pension established by an employer to provide such benefits to an individual or individuals in relation to their employment
Overlap Period: Most of the time, accounts are prepared up to a certain date and the calculated tax is paid on the bottom line amount. Complex rules apply in certain circumstances such as when a business starts or there is a change to the accounting period. There may be some overlap and the accounting period may become taxable across two separate tax years.
P
P60
Employers must provide this to all employees after the end of the tax year and by 19th May every year. It is a recorded detailing the tax code, taxable pay and tax deducted up to the end of the tax year. In will also show NI contributions and any student loan deductions.
P85
When an individual has left or will leave the UK, they must fill in the P85 which determines how the Tax Office will treat the tax affairs of the individual.
P9D
If the employee is paid less than £8500 per year then company benefits are not taxable. The £8500 limit will include their salary plus the cash value of the benefit they receive. The employer is required to advise the revenue of any benefits provided using this form.
Pay in Lieu
This term is used to describe a range of payments and reasons for doing so. How the payment is taxed depends on several things: whether it is through a contract, customary or payment of damages.
PAYE
“Pay As You Earn”. Employers are responsible for deducting Income Tax and National Insurance Contributions from your salary and paying the deductions HMRC.
Penalties
HMRC have the power to impose penalties where tax revenue has been lost through fraudulent or negligent conduct. Penalties can either be a fixed amount and an evaluation based on the amount of tax lost. HMRC may reduce this amount when taking in individual circumstances
Personal Allowance: The first £8105 of income was tax-free for everyone in tax year 2012/3. However, this relief was reduced on incomes over £100,000 by £1 for every £2 of income. This results in the removal of any allowance for incomes that exceed £116,210
Personal Pension Relief
Pension payments are paid as net of basic rate tax. Where the individual is liable to pay a higher rate of tax, or the additional rate, then personal pension relief should be claimed from HMRC directly. For individuals who self-assess, Personal Pension Relief is claimed through self-assessment; in all other cases, the claim must be made separately
Professional Subscriptions
Where subscriptions are necessary for professional membership of certain bodies, the cost is permitted as business expenses. HMRC has a list of professional bodies against which subscriptions will qualify for tax relief.
R
Redundancy Payments
If an employee has been in continuous employment for two or more years and their employment has been terminated as the job no longer exists, this is a payment made in compensation; they will also include pay in lieu and golden handshakes. There is a statutory limit of £30,000 above which income tax is chargeable. Only one limit applies per annum.
Retirement Annuity Payments
This is a type of personal pension scheme phased out in 1988. No new contracts have been created since July that year though it is still possible for existing agreements and the individuals that hold them to make contributions
The payments made are allowable for tax purposes, although there is a limit on the amount that can be paid into a scheme each year depending on your age at the beginning of the tax year.
S
Savings Interest
This is defined as investment income and is therefore liable to a charge of income tax. Tax will generally be deducted at source at a 20% rate. In April 2008, a 10% starting rate was introduced for savings income. The rate of income tax you pay against your savings income is dependent on your total income.
Self-assessment tax return
The main form used by the Tax Office to all individuals who must report their income and pay tax. Most people pay through PAYE so are not required where their total earnings come from employment. In some cases, employed individuals need to file a Tax Return.
Self-employment tax (or Self-employed tax)
This is a colloquial phrase used to refer to tax deducted at source from payments made to subcontractors under the CIS Scheme.
Surcharges
If tax is unpaid over 28 days after the due date, the individual will be liable to a pay extra 5% of the unpaid tax as a surcharge. If it is still unpaid after six months, then an additional 5% will be levied. Daily interest will also accrue.
T
Tax Avoidance
This is where tax rules are used to personal advantage. If you have used a scheme or arrangement to obtain a tax advantage you are required to disclose the details to HMRC. Failure to do so will result in penalties.
Tax Code
This is used by employers to calculate tax liability and deduct it at source from payments made to their employees. The tax code denotes allowances and deductions and is calculated by adding allowances then removing deductions. This formula gives an individual’s net allowance which is then converted into a tax code.
Tax on interest
This is a tax deducted from savings income taken at a rate of 20% at source. If an individual’s total taxable income for the tax year is below the taxable threshold, the individual may reclaim all or part of the tax deducted from their savings.
Tax Year
The tax year in the UK runs from the 6th April in one year to 5th April in the next year. Sometimes this is called the Year of Assessment.
U
Underpayment
This is the tax that is calculated and due at the end of the tax year.
UTR – Unique Tax Reference
This 10 digit reference number is allocated to those who need to use the self-assessment tax system.
V
VAT
Value Added Tax is charged against goods and services, applying to a taxable person in the course of business.
W
Wear & Tear Allowance
This is a 10% deduction against the ‘net rents’ of furnished lettings. It covers depreciation of the value of items such as furniture and fridges that are supplied as part of the accommodation. If it is not furnished or is only part-furnished, this 10% allowance is not payable.
Y
Year of Assessment
Or tax year, it goes from the 6th April in one year to the 5th April in the next year.
Our Services
Claim My Tax offers a wide range of tax rebate services.
Marriage Tax Allowance
If you’re married or in a civil partnership, you may be able to claim a rebate of up to £1,250 from the government thanks to the marriage tax allowance. It’s estimated that 2.4 million married couples in the UK could benefit from the tax break, it’s just that many of us still haven’t applied.
Working From Home Tax Rebate
If your employer requires you to work at home, you can – and always have been able to – claim for increased costs due to working from home, eg, heating and electricity. But apportioning extra costs such as heating and electricity is tough. So instead you can, in simple terms, claim a rate of £6 a week.
Mileage Tax Allowance
HMRC allows you to claim tax relief on mileage travelled whilst on business duties. If you use your own car for any of the following • visiting clients
• travelling to different offices • travelling to temporary work sites • making collections or dropping off goods. Then you could be eligible to claim your tax back. It doesn’t matter what type of vehicle you use.
PPI Tax Rebate
In April 2016 the personal savings allowance was introduced which allows taxpayers to earn up to £1,000 a year tax-free on their savings which includes the statutory interest paid on PPI claims.
Most people who have paid tax on PPI pay-outs since then, are entitled to some money back.
Uniform Tax Allowance
Do you wear a uniform or protective clothing for work? Do you have to wash and maintain it yourself? You could be due a tax refund. We've helped thousands of works claim back Uniform Tax Allowance on a no win, no fee basis..
Professional Fees, Subscriptions & Tools Tax Rebate
Professional fees and subscriptions are allowable deductions if they are amounts you have to pay in order to carry on your profession.
If you have to purchase tools for work use, and are not reimbursed by your employer, you should be eligible to claim tax relief on your purchases. This is known as a tool tax allowance and is claimed through your tax code.
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