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Abroad (also referred to as overseas): : |
Any country that is outside of England, Northern Ireland, Scotland and Wales. |
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Accountant : |
A person professionally qualified to prepare a set of business accounts for you. He or she may also prepare a Tax Return for you. |
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Accounting and Audit Fees : |
The amount you pay your accountant for preparing your business accounts are allowable expenses and can be deducted from your taxable profits, meaning you receive tax relief on the amount paid. |
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Balancing Allowances : |
Business assets depreciate in value, and the cost can be claimed as an expense. This is known as a Capital Allowance. Over the life span of the asset, the amount claimed should cover the depreciation.
When an asset is sold though, the actual depreciation may be more than Capital Allowances claimed already. If so, a Balancing Allowance can be claimed. This will be equal to the actual depreciation less Capital Allowances already given. |
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Balancing Charges : |
Business assets depreciate in value, and the cost can be claimed as an expense. This is known as a Capital Allowance. Over the life span of the asset, the amount claimed should cover the depreciation.
When an asset is sold though, the actual depreciation may be less than Capital Allowances claimed already, and thus, effectively excessive expenses have been claimed.
In this case, a Balancing Charge will be shown in the accounts. This will be equal to the Capital Allowances already given, less actual depreciation. |
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Accounting Period : |
The period on which your accounts are based. Usually this includes the twelve months of your Financial Year. The rules concerning your accounting periods during the starting and final years of your business can be complicated. |
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Acquisition : |
Is an important term in Capital Gains Tax rules meaning obtaining an item by purchase or other means.. |
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Accounting Date : |
This is the final day in your accounting period - usually the end of your financial year. e.g. accounting period ends 30 June each year - the accounting date is 30 June.
The date can be changed, but there are complicated rules and it is wise to consult an accountant if this is required. |
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Appeals : |
There is usually a given right of appeal against a decision given by H M Revenue & Customs. The new system of Revenue enquiries means most appeals are now against amendments made to Self Assessments.
The appeal must be made within 30 days of the assessment or amendment, although late appeals may be accepted, and the grounds for the appeal must be stated. If there is no agreement, the appeal is usually heard by the General Commissioners, although some are heard by the Special Commissioners. |
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Accruals Basis of Accounting : |
A method of accounting which basically includes income earned and expenses incurred during your accounting period, even though you may not have received or paid the cash. |
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Accruals : |
Amounts earned and included in your accounts for which payment has not yet been received. |
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Backwards Spreading : |
This allows royalties from publishing, of books and songs etc, to be taxed in more than one year. If this could not be done, all the tax on royalties would be paid in one year, and could even lead to a higher tax bill. Also, tax on lump sum advances may be spread forward over a number of years |
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Bad Debts : |
Money owed that has not been paid to you after a period of time is commonly known as a bad debt. |
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Bare Trust : |
This is where an asset is held in Trust by someone other than the owner. Any income still remains taxable on the actual owner. |
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Base Rate : |
The standard rate of interest, set monthly by the Bank of England.
It is the basis of the Official Interest Rate for a tax year. This is used when calculating taxable benefit on low interest loans from an employer. |
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Basic Rate Tax : |
The standard percentage of tax that you pay, is currently 20% from 6 April 2008. This means you pay 20p for every £1 taxable at the basic rate. |
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Basis of Accounting - Accruals : |
A method of accounting which basically includes income earned and expenses incurred during your accounting period, even though you may not have received or paid the cash. |
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Basis of Accounting - Cash : |
A method of accounting where only the income actually received is shown.
For example, accounts are prepared to 5 April. Income from work done before that date but received afterwards would not be shown until the next set of accounts.
(This basis cannot be used for any set of accounts which began on or after 6 April 99.) |
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Basis Period : |
This is the period for which your profits are taxable. Usually, this is the same as the accounting period, because you are taxed on the profit shown on your accounts.
Special rules apply in a) the first three years of business, b) when you finish business, or c) if you change your accounting date.
These rules mean the profit on which you are taxed is not always calculated from one set of accounts, and the basis period can be different than the accounting period. |
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Beneficiary : |
This is the person who benefits from something. The term is most commonly used for someone who receives income from a Trust or from the Estate of a deceased person. |
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Benefits (from employment) : |
When your employer gives you something other than salary, it is often deemed to be a taxable benefit. Common examples include company cars, medical insurance, accommodation etc. |
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Blind Person's Allowance : |
This allowance is available if you are registered blind. The only requirement for a claim is that you are registered blind with your local authority. The exception is for residents of Scotland and Northern Ireland, where this is not possible. In this case, just tell your tax office accordingly. |
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Bonus Issue : |
This is where extra shares are given at no cost to existing shareholders. |
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Books : |
Sometimes the cost of books used for work can be claimed against taxable income. In all cases, it must be proved that the books were solely for your business. Employees must also prove that the job could not be done without the books, which is often difficult to do.
Also, H M Revenue & Customs publishes a list of allowable professional journals. If a journal is on the list, the cost is allowable. |
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Business : |
Effectively, any time trade is carried out with the intention of making a profit, it constitutes a business.
In grey areas where profit are made from what could be considered to be a hobby, each case must be looked at individually. |
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Business Expenses : |
Many, but not all, outgoings of a business can be set against total income when arriving at taxable profits. |
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Business Income : |
Any form of income received by the business may be taxable.
This usually comes in the form of sales or fees etc, but also includes all other sources of income, such as investments or capital gains. |
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Tax Avoidance : |
Means using the tax rules to your best advantage. If you have used a scheme or arrangement to obtain a tax advantage you are required to disclose the details to H M Revenue & Customs with effect from 1st August 2004.
Failure to do so will result in penalties. |
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Capital Allowances : |
When an asset is used for business purposes, the purchase cost is not normally allowable as an expense. This is because the asset still has a value after it has been used.
However, the value of the asset will decrease over time. An allowance to reflect this depreciation can be claimed instead. This is known as a Capital Allowance. |
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Capital Gains Tax : |
If you own an asset that has gone up in value which you sell for a profit, you may need to pay Capital Gains Tax (CGT).
On its most simple level, CGT is the tax payable on the increase in value of an asset over the period it is owned. (see Capital Gains Tax - Calculations.)
CGT is not strictly the same as Income Tax, although it is dealt with at the same time.
Gains arising after 5 April 2008 are charged at a standard rate of 18% (10% for some - see entrepreneurs relief). For earlier tax years gains were treated as the top slice of income and charged at 10%, 20% or 40%. |
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Capital Gains Tax - calculations : |
CGT is charged on profits made when something is sold - essentially the selling price less purchase price.
Adjustments are made to this amount for amounts spent improving the asset, and costs incurred buying or selling the asset.
After working out the profit, or chargeable gain, the annual exempt amount is deducted. Tax is payable only if the profit exceeds this amount. |
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Entrepreneur's relief : |
The first £1 million of gains qualifying for relief will be taxed at 10%. This is a lifetime allowance and claims can be made on more than one occasion up to the lifetime limit. The relief may be due on gains made by individuals on the disposal of:
All or part of a trading business they carry on alone or in partnership;
Assets of the individuals or partnerships trading business after it ceases;
Shares in (and securites of)their personal trading company (or holding company of a trading group);
Assets owned by them and used by their personal trading company (or group) or partnership |
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Capital Gains - costs : |
Costs taken into account when calculating CGT include :
Acquisition and disposal costs: Such as the associated costs of buying and selling the asset (e.g.broker's fees for shares).
Enhancement costs: Any amounts spent on improving the asset. |
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Capital Gains - Indexation Allowance : |
In relative terms, £100 was worth more ten years ago than today. Indexation adjusted for this increase in the cost of living within CGT calculations by reducing the profit in real terms, based on changes in the Retail Price Index.
Up to 5 April 2008 for gains on disposals by individuals an indexation allowances was given up to 5 April 1998 and taper relief applied thereafter. For disposal on or after 6 April 2008 indexation allowance and taper relief will no longer be available.
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Capital Losses : |
When an asset is sold for less than the acquisition cost, a Capital Loss has arisen.
This loss can be carried forward to set against future capital gains. In some cases, though not commonly, it can be set against other income in the same year. |
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Losses - Carry Back : |
Business losses may be set against other income for the year. This is not always possible or desirable though. You may instead elect to have the loss set against income for previous years. This is known as a carry back of losses. |
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Losses - Carry Forward : |
Business losses may be set against other income for the year. This is not always possible or desirable though. You may instead elect to have the loss carried forward to set against income for subsequent years. This is known as a carry forward of losses. |
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Casual Earnings : |
When you do a job on an irregular basis, the earnings are classed as casual earnings.
This should not be confused with the term "black economy", which refers more specifically to undeclared irregular earnings. |
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Cash Equivalent : |
Unlike salary or wages, when an employee receives a taxable company benefit, there is no money on which tax can be calculated.
Instead, the employer works out the cash equivalent of the benefit. This may be the cost to the employers, but in many cases it is the result of a complex calculation.
The employee pays tax on this amount as though it was actually cash. |
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Certificate of Tax Deposit : |
It is possible to pay a large tax bill in advance by purchasing a Certificate of Tax Deposit from H M Revenue & Customs. This gives a good rate of interest, running from the date of purchase to the date the tax is due. Unfortunately, the interest is still taxable |
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Chargeable Assets : |
Capital gains tax only applies if the item sold is a chargeable asset.
The most commonly sold chargeable assets are shares. Other such assets include, properties held for rental, business assets, second homes and other assets worth more than £6000.
Non-chargeable assets include your main home, your own car, investments held in PEPS, and personal assets worth less than £6000. |
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Chargeable Event Gains : |
Confusingly, this has nothing to do with Capital Gains Tax.
A chargeable event happens when money or other benefits are paid out from a life insurance policy, and the payment is deemed taxable. (Most payments from qualifying life insurance policies are not classed as chargeable event gains)
The rules are complex, but the insurance company should advise if a chargeable event has arisen, and how much the taxable element is.
In any event, a tax credit is given on the chargeable gain, and only those liable to higher rate tax on their total income including this will pay additional tax |
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Chargeable Gains : |
This is the profit made on disposal of an asset.
Any amount over and above the annual exemption limit (currently £9600) will be charged to capital gains tax. |
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Charitable Covenants : |
Tax relief is available on payments made to approved charities. In the past, if this was done via a covenant, specific criteria had to be met. From 6 April 2001 though, all payments to charity are treated in the same way. See Charitable Gifts Relief. |
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Close Company : |
There are a number of classes of company.
To be a close company, it must be controlled by no more than 5 shareholders. This covers most private companies in the UK. The term applies in such areas as capital gains and when claiming tax relief on a loan to buy shares in the company. |
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Commonwealth Citizen : |
In most cases, if you are not resident in the UK, no tax allowances are available to you. However, Commonwealth Citizens, including British Citizens, qualify for full allowances even when overseas.
Perhaps the most common way this affects people is where a pension is paid in the UK to a person who has retired overseas. |
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Company Car : |
When your employer provides you with a car that you can use for your own private use, a taxable benefit arises. Special rules are used to work out the amount of the benefit. |
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Compensation : |
There are many forms of compensation, some of which will be subject to tax, and others which will not. |
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Debt Collection : |
If you employ a debt collector to chase up money that is owed to you, your accountant may set the costs against your income when arriving at your profit. |
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Debtors : |
People who owe you money are termed "debtors". When accounts are prepared, even if payments are oustanding from debtors, the details will still be shown. (see Debt Collection, Bad Debts.) |
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Deductions - Tax Code : |
A tax code is made up of allowances and deductions.
Deductions are typically items where tax is payable but it is not possible to deduct it other than through your pay or pension via the tax code. For example, taxable company benefits, or State Pension.
A tax code is calculated by adding together allowances, then taking away the deductions. This gives net allowances, which are converted into the tax code. |
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Deferment - National Insurance : |
Employee National Insurance payments are due at different rates depending upon your earnings. If you have more than one employment and you expect to earn at least the upper earnings limit for the year (£770pw from April 2008)
in any one employment, or
in a combination of employments
you can ask to defer payment of some of your contributions. H M Revenue & Customs Deferment Services will decide with which employers deferment can be given. |
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Deficiency Relief - Life Insurance policies : |
During the term of a Life Insurance Policy, it is possible to receive taxable income from it.
Any payout on termination of the policy should be more than paid in. If this amount is less than the amounts on which tax has already been paid, it follows that too much tax was paid. (ie tax has been paid on more income than has been received.) Corresponding deficiency relief can be claimed in these cases. |
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De Minimis : |
Meaning a lower limit before something takes effect.
For example, a de minimis of £5000 applies to certain low interest loans made by employers. If the total of these loans to an individual is below this de minimis limit, there is no taxable benefit. |
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Department for work and pensions : |
This is a Government department dealing with State Benefits. |
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Deductions - Calculations : |
Deductions are items that reduce your total income and therefore reduce your overall tax liability.
For example, self employed business profits are calculated from turnover minus deductions for business expenses. |
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Depreciation : |
An asset used in a business on an ongoing basis retains a residual value. However, this value will reduce over the lifespan of the asset. This reduction in value is the depreciation and can be claimed as a deduction from business profits.
Depreciation is claimed in accounts as Capital Allowances. |
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Director : |
For tax purposes, directors` income is treated in the same way as other employees, although there are differences in the way National Insurance and company benefits are dealt with. |
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Directors' Fees : |
Any fees paid over and above normal income to a director should be treated in the same way as other income |
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Disallowable Expenses : |
The accounts of a business come in two forms - business accounts and accounts for tax purposes.
In the former, all income and expenses will be shown, to reflect the exact financial situation. These accounts are prepared first and then used as the basis of the calculation of your profits for tax purposes.
In the latter, some expenses will then be disallowed as they do not qualify for tax relief. When the tax accounts are prepared, these disallowable expenses are added back on to net profits to find the net taxable profits. |
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Discounted Securities : |
Special rules apply to all securities issued at a discount to private investors. Securities are discounted where their issue price is lower than the redemption price.
The discount is limited to 15% of the redemption value, or 0.5% per year held whichever is lower.
There is no capital gains tax charge but instead a charge to income tax arises in the tax year of disposal or redemption on the profit made. |
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Discretionary Trusts : |
A Trust where the Trustees have discretionary power over the distribution of income and assets and no-one has a specific right to them.
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Dispensation : |
All payments to employees are taxable - including business expenses. Strictly an employer should advise H M Revenue & Customs, followed by a separate claim by the individual for tax relief. A dispensation removes the requirement to do this.
An employer reaches an agreement with the Tax Office that only valid business expenses will will be reimbursed to the employee and no report or claim is necessary. |
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Disposals : |
This refers to the sale, loss, gift, theft or swap of an asset. |
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Distribution/Dividend : |
This is a term used for the money paid out on investments such as shares, unit trusts etc.
A notional tax credit of 10% is shown as deducted on the voucher, which is not refundable. However, if you are liable to tax at the higher rate an additional charge of 22.5% of the gross dividend is due. |
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Dividends - Stock or Scrip Dividends : |
Where shares are offered as an alternative to a cash dividend, it is known as a stock or scrip dividend.
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Domicile : |
Broadly speaking you are domiciled in the country considered to be your permanent home. It is distinct from nationality or residence and you can only have one domicile at any given time.
Domicile of Origin - inherited from father
Domicile of choice - can change domicile of origin by behaviour
Factors for deciding domicile of choice are, burial arrangements, location of assets, membership of clubs, visits or links with a country
Domicile of Dependency - follows that of the person on whom you are legally dependent.
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Double Taxation : |
Where the same income is liable to be taxed in both the UK and another country, relief may be available under the specific terms of a double tax agreement between the UK and that other country. This ensures the income is only taxed once. |
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Dual Resident : |
It is possible to be resident in more than one country at a time for tax purposes. The term for this is dual residence. This does not necessarily mean that tax is paid twice as Double Taxation rules may apply. |
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Expenses - Employment : |
Expenses must be wholly, exclusively and necessarily incurred in the performance of the duties of your employment, to qualify for tax relief. |
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Earned Income : |
This is monies received in relation to your work and can be received from employment, directorship or self employment. |
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Enterprise Investment Scheme : |
This scheme was introduced to encourage individuals to invest in small higher risk trading companies. The scheme provides income tax relief to external investors in qualifying unquoted companies, and capital gains tax exemption on disposal of shares. |
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Elections : |
In some cases, individuals have a choice as to how their tax affairs are arranged. In these situations, an election must be made before the change can be applied.
There are many such elections, each with its own rules, and usually strict time limits. |
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Emoluments : |
'Emoluments' include all salaries, fees, wages, perquisites, including benefits in kind and profits whatsoever.
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Employee : |
An employee is an individual who works under the control of and as part of the business of another, engaged under a contract which is a'contract of service'. |
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Beneficial Loans : |
Loan granted to employees at a low rate of interest may give rise to a taxable benefit. These are know as beneficial loans.
Not all employer loans are taxable. If the total of all loans that would not qualify for tax relief elsewhere is below £5000 there will be no charge.
If chargeable, tax is due on the difference between the interest paid and the interest payable at a standard rate.
As a final point, if loan qualifies for tax relief on the interest paid, relief may also be due on the taxable element (see Deemed Interest). |
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Enterprise Zones : |
Certain areas in which the Government particularly wants to encourage investment have been designated as enterprise zones.
Those who set up business within an enterprise zone get certain advantages for a limited number of years, such as not paying business rates and entitlement to 100% relief for expenditure on new buildings for use in the trade. This relief will be withdrawn from April 2011 |
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Entertainment : |
Business entertainment means the provision of free or subsidised hospitality or entertainment. The person being entertained may be a customer, a potential customer or any other person.
Rules specify whether the amount is shown in the company accounts or on an employee's P11D as a taxable amount. |
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Enquiries : |
H M Revenue & Customs can make enquiries into your self assessment tax return up to 22 months from the end of the tax year to which the return relates. However, if the return is filed late this period is extended.
The enquiry can be to clarify any entry made on the return. If you are at all unsure, you should seek further professional advice. |
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Estate : |
`Estate` is a person’s total possessions. It includes goods, money and property of every kind. In particular, `estate` refers to the possessions that a deceased person leaves.
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Ex Gratia : |
The term ‘ex-gratia’ is used in relation to a payment the employer makes to an employee when under no legal or contractual obligation to do so. |
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Exempt Income : |
Some types of income are exempt from UK tax. Examples include income from an ISA, premium bond prizes, some social security benefits, damages for personal injury. |
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UTR : |
Unique Taxpayer Reference. This is a unique 10 digit reference number allocated to individuals falling within the self assessment system. |
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Error or Mistake Claim : |
Where there are errors or mistakes in Tax Returns, then subject to certain conditions claims for relief made be made within 5 years from the 31 January filing date.
This does not overule existing time limits that apply for specific claims.
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Flat Rate Expenses : |
Deductions are allowed for tools, special clothing etc necessarily provided by an employee without reimbursement and which the employer does not make available. The allowance you can claim is an agreed amount depending on which industry your occcupation falls within. |
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Foreign Income : |
A person resident in the UK is generally chargeable to UK tax on worldwide income. However, there are exceptions and reliefs depending upon:-
The type of income
The residence status; and
The domicile status
of the individual and paying body. You should seek professional advice if you are unsure.
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Wear & Tear Allowance : |
A deduction of 10% of the 'net rents' from the furnished lettings to cover depreciation of furniture, fridges etc. supplied with the accommodation.
If the accommodation isn't furnished, or only partly furnished, the 10% wear & tear allowance isn't due. |
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Foreign Earnings Deduction : |
Where the duties of a 'seafarer' resident and ordinarily resident in the UK are performed wholly or partly outside the UK, a deduction may be allowed from taxable earnings. |
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Net rents : |
Gross rents received less payments for charges and services that would normally be borne by the tenant, but are, in fact, borne by you (for example, council tax, water and sewerage rates etc). |
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Furnished Holiday Lettings : |
A letting is regarded as a furnished holiday letting where the property is a UK property, is furnished and the letting meets all three of the following qualifying tests:
Available for holiday letting to the public on a commercial basis for 140 days or more; and
let commercially for 70 days or more; and
let for periods of longer term occupation (more than 31 consecutive days) for not more than 155 days during the year
Losses arising on furnished Holiday Lettings can be set against your total income and are not restricted to the rental business. |
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Free Standing Additional Voluntary contributions (FSAVCs) : |
Payments made by an employee to a private scheme separate to a company scheme. They are also commonly known as FSAVCs. The rules regarding maximum contributions are slightly different to those for standard personal pension schemes. |
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Homeworker employee : |
Tax relief is available to cover reasonable additional household expenses where the duties carried out at home are central duties of the employment and it is a requirement of the duties that the work is carried out at home and nowhere else.
After 5th April 2003 payments made to an employee by the employer, for carrying out duties of employment at home, are exempt from income tax . Up to £2 pw (£3 pw after 5th April 2008) can be paid without the need to provide supporting evidence of the expenses incurred. For larger payments the employer must provide evidence that the payment qualifies |
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Capital Gains - Relief : |
There are various reliefs that may be available to reduce the Capital Gains Tax liability on the sale or gift of an asset. You should seek professional advise to determine whether any relief is due. |
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Holiday Lettings : |
See Furnished Holiday lettings. |
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Individual Savings Account : |
Also known as an ISA, this is a tax free savings account introduced in April 1999 to replace TESSA's and PEP's. There are limits on the amounts that can be invested annually which can be split into 3 components, Cash, Life Insurance and Stocks and Shares. |
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Inheritance Tax : |
Inheritance tax may be payable:
On certain lifetime gifts, including transfers into and out of trusts
and
On death on the value of an individuals estate as well as on certain gifts made during the last 7 years of the deceased's lifetime. |
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Investment Income : |
Any interest received on savings
Any dividends and the accompanying tax credit received on shares held in UK companies;
Any discounts on or income from securities; and
Gains from life insurance policies etc., which are chargeable to income tax. |
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Incorporation : |
Where a business is transferred to a company as a going concern together with the whole of the assets of the business and the transfer is made wholly or partly in exchange for shares issued by the new company. |
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Tenancy in Common : |
A tenancy in common is where:
The owners can have unequal interests in the property
The interest of any owner passes on death under their will or, if there is no will, under the rules of intestacy
The share of a tenant in common is usually in proportion to the money they put in to buy the joint property
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Job Related Accommodation : |
The provision of accomodation to a person by reason of employment, results in a charge to tax on the benefit received. There are exceptions on which no tax is charged and these are when it is:
Necessary for the employee to reside in the accommodation for proper performance of their duties; or
Customary for the employee to be provided with accommodation for better performance of duties; or
Part of a special security arrangement. |
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Termination Payments : |
See Redundancy Payments |
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Tax Evasion : |
Means illegally reducing your tax bill by: -
Understating your income;
Excessive claim for expenses;
Deliberately falsifying the nature of transactions, etc.
In such cases you may face criminal prosecution as well as being required to pay the tax lost plus interest and penalties. |
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Married Couple`s Allowance : |
Since 6th April 2000 this allowance is only available if either spouse was born before 6 April 1935.
Also see age related allowances. |
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Mileage expenses : |
See Approved Mileage Rates |
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Minimum Wage : |
The National Minimum Wage rates are as follows:
16-17 years from:
1st October 2007 £3.40ph
1st October 2008 £3.53ph
18-21 years from:
1st October 2007 £4.60ph
1st October 2008 £4.77ph
21 and over from:
1st October 2007 £5.52ph
1st October 2008 £5.73ph
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Money Laundering : |
New Money Laundering Regulations apply to most businesses in the financial sector and came into force on 1 March 2004.
By law these businesses are now required to establish the identity and address of any new clients
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National Insurance - Class 1A : |
These contributions are paid annually by employers on taxable benefits provided to employees that are not chargeable to Class 1 or Class 1B. |
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National Insurance - Class 1B : |
These are payable by employers who enter into a PAYE Settlement Agreement with the Inland Revenue |
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National Insurance - Class 1 : |
Employees and their employers pay Class 1 contributions. The contributions are based on a percentage of earnings. Payments made by employees are 'Primary' contributions and those by employers are 'Secondary' contributions.
Primary contributions are not payable if under 16 years and over pension age.
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National Insurance - Class 2 : |
This is paid by individuals who are self employed and is a fixed amount of £2.30 pw paid direct to the National Insurance Contributions Office.
There is a small earnings exception where if profits are below £4825 per annum (2008/09)an individual is excepted from making payments.
These are not payable if under 16 years or over pension age at the beginning of the tax year. |
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National Insurance - Class 3 : |
These are voluntary contributions and are paid by those who would otherwise not pay enough contributions to earn a full pension. |
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National Insurance - Class 4 : |
These are paid by an individual who is self employed and are based on a percentage of profits above the lower limit which is currently equal to the personal allowance.
These are payable to H M Revenue & Customs under self assessment.
These are not payable if under 16 years or over pension age at the beginning of the tax year. |
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Net Relevant Earnings : |
Net Relevant Earnings (or NRE) are the total taxable earnings from all sources, including self employed income, but excluding any income from a job which has a company pension scheme.
NRE is used when calculating the maximum that can be paid into a personal pension scheme. These are limited to a certain percentage of your net relevant earnings. |
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Occupational Pension : |
An occupational or company pension is established by an employer to provide pension benefits to individuals in respect of their service as employees. |
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Year of Assessment : |
The year of assessment runs from the 6th April to 5th April next. Therefore the 2008/09 tax year runs from 6th April 2008 to 5th April 2009. |
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Ordinary Residence : |
Ordinary residence means greater permanance than residence. This is the place where you normally live.
Ordinary residence determines individual liability to income tax and capital gains tax in the UK. |
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Commuting : |
Every day travel to work is not usually allowable for tax purposes.
Exceptions may apply when a workplace is temporarily moved, or where a person works from home and travels to various customers. |
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Overlap Relief : |
On commencement of a business or change of accounting period, the overlap rules have the effect of taxing the same profits in two successive years of asssessment. The 'overlap profit' is the amount that has been taxed twice.
Relief for overlap profit is given by way of a deduction from profits when there is a change of accounting period resulting in a basis period of more than 12 months or, on cessation of the business. |
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PAYE Coding Notice - P2 : |
The form shows the allowances and deductions used in calculating your tax code. It is used by your employer or pension provider to determine the tax deducted over the year. |
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P9D : |
Company benefits are not taxable if the employee is paid at a rate of less than £8500 per year. This limit includes the salary plus the value of the benefit provided.
In these cases, the employer advises the revenue of any benefits provided on a form P9D. |
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P11D : |
Forms P11D show the cash equivalent of taxable benefits provided to employees earning £8,500 per annum or more and directors. This limit includes the salary plus the value of the benefit provided.
They are completed by the Employer and copies must be provided to both H M Revenue & Customs and the employee by 6 July after the end of the tax year.
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P45 : |
When you leave a job, your employer will provide you with a form P45. This shows taxable pay and tax paid up to the leaving date.
It comes in four parts,
Part 1 - Sent by the employer to their tax office.
Part 1A - For you to keep
Parts 2 & 3 - To be given to any new employer to ensure correct tax continues to be deducted. |
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P60 : |
Employers are required to provide this form to all employees by 19th May after the end of the tax year.
The form details taxable pay and tax deducted together with the tax code operated up to the year ended 5th April. In addition details of national insurance contributions paid and any student loan deductions are also shown. |
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PAYE : |
PAYE stands for Pay As You Earn.
Your employer is responsible for deducting tax and national insurance from your salary and paying this over to H M Revenue & Customs. |
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Payment on Account : |
Under Self Assessment you are required to make payments on account where your tax liability exceeds £500 AND less than 80% of the tax liability is collected at source. From 2009/10 this limit will be increased to £1000. |
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Personal Pension Relief : |
Payments are normally paid net of basic rate tax. Where the individual is liable to higher rate tax additional relief can be claimed. |
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Furnished Lettings : |
Income tax is due on rents received in respect of furnished residential lettings. A furnished property is one which is capable of normal occupation without the tenant having to provide their own beds, tables, sofas and other furnishings, cooker etc. The provison of nominal furnishings will not meet this requirement.
A wear and tear allowance of 10% of the 'net rent' may be claimed to cover depreciation of furniture, fridges etc supplied with the accommodation. |
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Personal Allowance : |
In the 2008/09 tax year the first £5435 of income is tax free.
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Potentially Exempt Transfer : |
These are any transfer of value by an individual to:
Another individual;
An Accumulation and Maintenance trust;
A trust for the disabled;
A trust creating an interest in possession
They are exempt when made and remain so unless the transferor dies within 7 years of the date of the gift. |
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Professional Subscriptions : |
Subscriptions paid to professional bodies are often allowed as business expenses.
H M Revenue & Customs publishes a list of professional bodies to whom subscriptions qualify for tax relief. |
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Penalties : |
H M Revenue & Customs are able to impose penalties where it has been established that tax has been lost through fraudulent or negligent conduct. Some penalties are for fixed amounts and others are based on the amount of tax lost. H M Revenue & Customs do however, have the ability to reduce the amount dependant upon the individual circumstances |
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Qualifying Loans : |
Some types of loan qualify for tax relief on the interest paid, these are:
Loans to purchase plant or machinery used for an employment or trade.
Loans to buy shares in a close company. If you own 5% or more or are a full time working officer or employee (subject to additional conditions)
Loans to purchase land and buildings for use in business.
Loans to buy an interest in a partnership.
Loans to buy a life annuity if aged 65 or over at the time of purchase.
Loans taken out by a Personal Representative to pay Inheritance tax. |
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Loans : |
See Qualifying Loans |
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Rental Income : |
Income from UK land and property which is taxable as investment income, except for Furnished Holiday Lettings which is treated as trading income. |
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Redundancy Payments : |
Payments made to an individual who has been continuously employed for 2 years or more and their employment has been terminated as the job no longer exists. These can include pay in lieu and golden handshakes.
The amounts are chargeable to income tax above the statutory limit of £30,000. Only one limit applies per annum. |
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Remittance Basis : |
Tax is usually payable by UK residents on worldwide income. This does not always apply to individuals classed as not domiciled here. In these cases, tax is only due on foreign income when it is actually brought into the UK. With effect from 6 April 2008 individuals who are taxed on a remittance basis will in general lose entitlement to personal allowances and capital gains tax annual exemption. This is subject to a de minimis level of £2000. Those choosing to be taxed on this basis and who have been UK resident for longer than 7 of the past 10 years will be required to pay a £30000 charge. |
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Rent A Room Scheme : |
Rents received from letting furnished accommodation in your only or main residence are exempt from tax subject to a maximum limit of £4250 per year. If rents received exceed this amount tax is paid on:
Gross rents less expenses;
OR
The amount by which the rents exceed the maximum, without deducting expenses
If the income is received jointly, the exemption is split. |
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Rental Expenses : |
Rental expenses fall into two categories.
Revenue expenses:Ongoing expenses incurred in the rental of a property are deducted from the annual rental income to arrive at the profit. They may include letting agents' fees, house insurance etc.
Capital Expenses:These are expenses on the fabric of the property. For instance, an extension to a house, or new wiring etc. increasing the value of the property. Such expenses can only be claimed against any future capital gains tax. |
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Residence : |
In UK tax, your residence is where you are classed as living in any particular year. If this is the UK, it is likely that you will be taxed on all your worldwide income.
A person is definitely classed as resident in the UK if more than 183 days were spent here in a particular year, or more than 90 days were spent here on average over a 4 year period. Up to 5 April 2008 days of arrival and departure were not counted for this purpose. However from 6 April 2008 any day where you are present in the UK at midnight will be counted as a day of presence in the UK for residence purposes. |
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Retirement Annuity Payments : |
Retirement Annuity Schemes are a type of personal pension scheme that was phased out in July 1988. Since then, no new contracts have been created, although contributions to existing agreements have still been possible.
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.
Finally, unlike personal pension scheme contributions, no tax relief is given at source. It must always be claimed separately. |
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Savings Interest : |
This is investment income and liable to income tax. Generally, tax is deducted at source at a rate of 20%. From 6 April 2008 there is a 10% starting rate for ‘savings income’ that you may be entitled to. The rate at which your saving income is taxable is dependant on your earnings. If your earnings are less than your personal allowance plus £2320, then some or all of your savings income will be taxable at 10%. Additionally, if your total income, including savings income, exceeds your personal allowance plus £36000, some or all of your savings income will be liable at 40%.
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Surcharges : |
Where tax remains unpaid more than 28 days after the due date, you will be liable to a surcharge of 5% of the unpaid tax. An additional 5% will be levied on any amount still unpaid more than 6 months after the due date. Interest also accrues on a daily basis. |
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Gift Aid : |
The Gift Aid scheme covers both single donations and a series of donations including covenanted payments to charitable organisations. There is no minimum limit for gift aid payments. See Charitable Gifts Relief. |
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General Commissioners : |
These are local persons appointed on a voluntary basis by the Lord Chancellor. |
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Lettings : |
See rental income, furnished holiday lettings and furnished lettings |
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Age related allowances : |
For individuals aged 65 and over in the tax year, additional age related allowances are available. However, these allowances are restricted where total taxable income exceeds the limits set for the year. |
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K Codes : |
If a tax code contains the letter "K", it signifies that the deductions in the code are more than the allowances. |
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Know-How : |
Know-how is industrial information or techniques that are likely to assist in
the manufacture or processing of goods and materials,
the working of a source of mineral deposits, or
the carrying out of any agricultural, forestry or fishing operations |
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Capital Gains - declaration : |
A CGT declaration is only obligatory where there is a chargeable gain of more than the annual exempt amount (2007/08 = £9200 and 2008/09 = £9600), or where assets were disposed of which were worth more than four times that amount in the year. |
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Charitable Gifts Relief : |
Tax relief at the payers top tax rate is available for charitable donations under the gift aid scheme. To qualify for the relief donors are required to make a declaration. Donations are treated as being net of basic rate tax, but in order to retain the tax relief, donors must be liable to pay an equivelent amount of income tax. For Gift Aid donations made on or after 06/04/2003 a taxpayer may claim to be treated as if the donation had been made in the previous tax year. A claim must be made no later than the date the tax return for the previous year is filed BUT filed no later than 31 Jan |
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Anti-avoidance : |
Anti-avoidance rules are included in tax legislation in order to close any loopholes which may be used to avoid paying tax. |
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Joint Tenancy : |
A Joint Tenancy agreement is when:
All the joint owners have equal interests in the property
The interest or share of each owner passes on their death by survivorship to the remaining owner(s), in equal shares
Each owner can break up the joint tenancy. The owners then hold the joint asset as tenants in common
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Allowances : |
Allowances are standard tax-free amounts set by the government every year. They are given to all UK & commonwealth citizens and others who qualify under specific criteria. The most common is the Personal Allowance. This is given to everyone resident in the United Kingdom for tax purposes.
Other main allowances previously included Married Couples` Allowance, but since 6th April 2000 married allowance has been restricted to those over 65 at that date.
Allowances for children have now been abolished but were available up to 5th April 2003 for children born after 6th April 1985. |
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Business Property Relief : |
A potential relief available against Inheritance Tax when ownership of a business property is transferred by way of a gift. The property must have been owned for at least two years. The amount of relief depends on the type of business property owned.
Business or interest in business Relief due up to 100%
Unquoted shares in a trading company - up to 100%
Shares in a quoted company which
the donor had control of before the gift - up to 50%
Asset of a quoted company which
the donor had control of before the gift - up to 50%
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Enterprise Management Incentives : |
Small Higher risk companies may offer their employees enterprise management share options, subject to a limit. Providing scheme rules are complied with, there will normally be no income tax or employers and employees NIC to pay and when an employee sells shares acquired under the scheme, Capital Gains Tax taper relief will date from the time the option was granted rather than the date it was exercised. There is no requirement for the scheme to be registered, but notice must be given when options are granted. |
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Approved Mileage Allowance Payments : |
AMAP is a simple way of calculating tax-free mileage expenses. An employer can pay up to 40p per mile for the first 10000 business miles and 25p per mile thereafter without any tax being due on the payment. If reimbursement is at less than these rates a claim for the remainder can be made. See Mileage Allowance Relief and our Mileage Expenses calculators. |
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VAT : |
Meaning Value added Tax, it is charged on the supply of goods and services made in the course of a business by a taxable person. The legislation is quite complex and you should always seek professional advice. |
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Seafarers : |
For seafarers who: -
Are resident and ordinarily resident in the UK
AND
Perform duties wholly or partly outside the UK
A deduction may be allowed from taxable earnings. |
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Special Commissioners : |
These are full time civil servants, being barristers, advocats or solicitors etc. of at least 10 years standing, appointed for this purpose. |
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Golden Handcuff : |
A 'golden handcuff' also known as a 'golden hello' is a term used for a lump sum payment received on taking up an employment. It is normally taxed as advanced pay for future services unless it represents compensation for loss of some right or asset on taking up the employment. You should seek professional advise if you think a payment you are about to receive is in this category. |
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Golden Handshake : |
This is the term used for a lump sum payment received when you leave an employment. The important factor in determining whether it is taxable as employment income, is if it is a payment for services or because the job no longer exists. |
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Civil Partner : |
A party to a formal civil partnership. |
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Civil Partnership : |
A formal partnership between same sex couples. A civil partnership is treated in the same way as a marriage for all tax purposes. |
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FBI : |
Filing By Internet. Refers to filing tax returns of any type on-line. |
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