What do we mean by...?

In this section we look at some tax words. We explain what they mean and where you can get more information on them.

A B C D E F G H I K L M N O P Q R S T U V W

A

AMAP (see Approved Mileage Allowance Payment)

Accounting date

• Your accounting date is the last day of your accounting period (see below).
• You can have any day in the year as your accounting date or you can choose whatever date is most suitable to your business or you may just use the anniversary of your start date if you prefer.
• You normally keep the same date each year although you can change the date if you want.

Accounting period

• Your accounting period is the period that your accounts cover.
• If you make up your accounts to 31 October each year, this is your accounting date and the 12 months to 31 October is your accounting period.

Additional State Pension (see State Second Pension)

Additional Voluntary Contribution (AVC)

• If you are in a pension scheme provided by your employer, you can also make extra payments of your own to the employer's scheme. These are called Additional Voluntary Contributions (AVCs) and you can pay in up to 15% of your earnings from that employment in any tax year.

Adjudicator

• The Adjudicator investigates complaints about HMRC.
• Their services are free and they can look at issues such as mistakes, delays, misleading advice and staff behaviour. However, first you must take your complaint to the Revenue, and only if it proves impossible to sort out directly with them can you then take the complaint to the Adjudicator.

Administrator

• The person appointed to handle the estate of someone who has died intestate.

Annual exemption

• The first slice of your gains on sale or gift of an asset is exempt from tax. This amount is announced yearly by the government in the Budget.

Annual Investment Allowance (AIA)

• The AIA is an allowance which encourages businesses to invest in certain capital assets thereby reducing their tax liability. It is effectively a 100% allowance for business expenditure on almost all plant or machinery (apart from cars). It is available to businesses regardless of their size. The AIA has a ceiling placed on the total relief and this will be set annually in the Budget.
• The AIA is apportioned between the old and new rates where an accounting year does not end on 5 April.

Appropriate personal pension (APP) (also called rebate only personal pension)

• If you work for an employer you can take out a personal pension to replace the Additional State Pension. These personal pensions are 'rebate only' which means that normally the only money being paid into the scheme is the National Insurance rebate from HMRC.
• The amount of the rebate from HMRC to your APP scheme depends on your age and your earnings and will be paid once your earnings are known at the end of the tax year. You can also make additional payments of your own to an APP.

Approved Mileage Allowance Payment (AMAP)

• Many employees will be paid an allowance for using their own vehicle for business travel. Usually they will be paid so much per mile.
• You can receive up to a maximum amount per mile without having to pay any tax. This is the Approved Mileage Allowance Payment (AMAP). This allowance is also used to see if you will need to pay tax and NIC on your expenses.

  Use the link to view a table of the current rates of AMAP.

Assets

• Assets are things you own such as your house, shares or other possessions.
• If you own an asset jointly, your gain will be based on what share of the proceeds you received. For example if husband and wife equally own an asset, each will have a gain on the sale based on half the proceeds.

Back to the top

B

Balancing allowance and balancing charge

• When you sell an asset on which you claimed capital allowances you will have an adjustment to make.
• If your capital allowances claimed to date on the asset are more than the actual difference between that expenditure and the sale proceeds, you may make a balancing charge, which you will need to add to your profits.
• If the amount written off is less than the difference between what you spent on the asset and the sale proceeds, you will get a balancing allowance, which you take off your profits.

Basis period (for self employed profits)

• Apart from your first few years of business and any year in which you change your accounting date - your basis period for any tax year is usually the 12 months up to your accounting date ending in that tax year.
• So for example if you have been in business for a few years and your accounting date is 31 January - your basis period for 2011/12 (the year to 5 April 2012) will be the twelve months ended on 31 January 2012 as this is the end of the accounting period falling in the tax year.

Beneficiary

• A beneficiary is a person who you name in your will as someone who will receive assets or cash from your estate.
• There is more information on this here.

Benefits (see State benefits)

Back to the top

C

CGT (see capital gains tax)

Capital Allowances (see also Annual Investment Allowance (AIA), plant and machinery)

• A capital allowance is a tax allowance you can claim on the purchase of plant and machinery, or equipment you use in your business such as the cost of vans and cars, machines, scaffolding, ladders, tools, equipment, furniture, computers and similar items. You can also claim capital allowances on items you used privately before using them in your business.

• More information on capital allowances can be found in our section on the Self-employed.

Capital gains tax (CGT)

• A tax on profits made on the sale or disposal of an asset. See also Annual exemption.
• Sales of some assets are free from CGT.

Capital loss

• A capital loss occurs when the amount you originally paid for the asset (or its value when it was given to you) is less than the proceeds you get when you sell it (or its market value if you give it away). There is an example of this here.

Cash Equivalent (redundancy payments)

• Sometimes when considering the value on which someone is taxed on goods or services received from their employer this value is referred to as a cash equivalent. Then, depending upon the type of good or service (for example, the provision of a car, fuel, accommodation or a loan at a reduced rate of interest) there will be complex rules as to how to calculate the cash equivalent on which you are taxed.

Category A and B state pensions

• A Category A pension is based on basic pension and an add-on of additional pension. Basic pension depends on the number of years you have worked and additional pension on the amount of your National Insurance contributions.
• A Category B pension is a type of pension based on your spouse's contributions.

Centre for Non Residents (See HMRC Residency)

Certificate of Exception (including Foster carers)

• If your taxable profit falls below a certain level every year which is set in the Budget, you need not pay any Class 2 NIC for that year - this is the small earnings exception. You should still register for Class 2 NIC as normal but you can apply for a certificate of exception if you wish. The form you will need is CF10 - Self-employed people with small earnings which can also be obtained from the Revenue.

Child benefit

• Child benefit is a tax free benefit for people bringing up children. It is paid for each child and the amount you get is not affected by income or savings.

Childcare costs (for tax credits)

• You may be able to claim extra working tax credit (WTC) to help with the cost of registered or approved childcare.
• Childcare is one of the elements that makes up WTC.

Childrens' income

• If you are under 18 and unmarried and your parents (gifts from grandparents are unaffected by these rules) make a gift of money to you which is invested and produces income of over £100 (before any tax is taken off) each year (looking at the total gifts they make to you and not each gift separately) - then for tax purposes this entire income (not just the excess over £100) will be treated as your parents' and not your income.
• If the income is below £100 it is treated as your own income and you may be entitled to a tax repayment.

Child tax credit

• Child tax credit, along with child benefit, is the way that families get welfare support for their children, and for 16-18 year olds in education.
• In 2003, it replaced the former working families' tax credit, disabled person's tax credit and children's tax credit with a single system.

Classes of National Insurance contributions

• Class 1 contributions are paid if you work for an employer and your earnings are above a lower limit which is set annually in the Budget. Your employer also has to pay contributions based on your earnings.
• Class 2 and 4 contributions are paid by the self-employed.
• There are voluntary contributions called Class 3 you can pay if you do not pay Class 1 or Class 2 but you want to protect your rights to some state benefits.

CNR (See HMRC Residency)

Coding notice (also called PAYE coding notice)

• Your employer knows how much tax to take off your wages because HMRC tell him to operate a specific code number on your wages. The code tells the employer what allowances he can set against your pay.
• HMRC let you know what code your employer should be operating by sending you a form called a Notice of Coding (form P2). This form sets out your allowances and takes off any amounts that reduce those allowances. The balance is then available to be set off against your pay or pension.

Commonwealth

• The Commonwealth is a voluntary association developed gradually out of what was the old British Empire. It is now made up of 54 nations spread all over the world. Use the link to see a complete list.

Community Amateur Sports Clubs (CASC)(see also Gift Aid)

• When you give money to a registered Community Amateur Sports Club (CASC) under Gift Aid, the CASC can reclaim the tax that you've paid on that money.
• A lot of local sports clubs covering a large variety of different sports will be able to or may already have registered as CASCs.
• Check with the club receiving your donation to ensure that the payment will qualify as Gift Aid. Bear in mind that to qualify as a Gift Aid payment your donation must be an outright gift to the club - it does not apply to any other payments such as your membership subscription.

Consolatory payments

• If HMRC have made a mistake in dealing with you they have the power to make a consolatory payment as an acknowledgment of their poor treatment of you.
• In addition if HMRC handle your complaint badly, they may pay you a further sum.
• All such consolatory payments are tax-free and you need not show them on your tax return.

Contracting out (of State Second Pension)

• You can choose to opt out (called contracting out) of the State Second Pension (S2P); if you do so, HMRC pay part of your National Insurance contributions directly to the pension provider of your choice to fund a separate pension scheme with them instead of increasing the amount in the Government S2P scheme.

Contributory benefits

• For some UK benefits you need to have paid NIC contributions - these are called contributory benefits. There are other benefits where provided the rules for claiming apply to you, it does not matter whether or not you have paid any NIC.

Back to the top

D

Deed of Variation

• If all the beneficiaries agree, it is possible to vary the way an estate is distributed or for some beneficiaries to disclaim their legacy provided they do so within 2 years of the date of death - the variation then takes effect as if it were made at the date of death.
• There is more information on this topic here.

Deferring NIC

• If you are both employed and self employed you can defer payment of NIC on your profits until after the end of the tax year. You will need to make a claim to defer your payments.

Determinations

• If you do not send in your tax return by the deadline on 31 January, so that it is not clear how much tax you need to pay - HMRC may issue you with a 'determination of tax'. This is an estimate of your tax bill for the year and you cannot appeal against the figure.
• Any statements of account you get will include the determination of tax as a basis for your payments on account if you need to make them.
• The only way to get your tax reduced or amended to the correct figure is to send in your tax return for the year.

Dispensation

• When the expenses that your employer pays you are fully allowable for tax purposes, your employer can ask their tax office to issue a 'dispensation'.
• If your employer has a dispensation you will not get taxed on any of the expenses paid to you covered by that dispensation. Your tax code will not show the expense payments and you should not include them on your tax return if you get one.

Disregards

• These are the weekly amounts of income that you are allowed to receive without affecting the amount of certain state benefits such as income support or pension credit. The amount of the disregard depends on your own personal circumstances and the particular benefit concerned.

Dividends

• These are amounts paid by companies on their shares and are a way of passing the profit of a company to its shareholders. The dividend the company actually declares and pays to its shareholders is the net amount after a tax credit of 10% has been taken off.
• If you are a non taxpayer you cannot reclaim this 10% tax credit and if you pay tax at the basic rate - you will have no further tax to pay.
• But if you pay tax at higher rates, you will have to pay further tax.

Domicile

• Domicile means the legal system with which you are most closely connected. This will normally be a country, but it may be a State within a country if it has its own legal system.
• It is not the same as nationality or residence. Broadly speaking, you have your domicile in the country that is your 'real' or permanent home. Everyone acquires a domicile of origin at birth. This is generally the country that your father considered to be his 'home country' at the date of your birth. If your parents were not married when you were born, your domicile of origin comes from your mother.
• Although you can choose a new place of domicile, it is often the case that if you have a domicile of origin outside the UK, then this will still apply unless you have chosen to remain in the UK permanently or indefinitely.
• So domicile can be loosely thought of as the place to which you will ultimately return even though you may be absent from it from time to time, or even for a very long time. Your own domicile will depend upon the application of detailed rules to your circumstances.
• HMRC’s guidance on domicile can be found in their booklet HMRC6.

Double taxation relief

• If you have income or capital gains which arise in a country outside the UK and are taxed there, the UK will allow you to deduct the foreign tax paid from UK tax on the same income or gains. If the foreign tax exceeds the UK tax, you cannot recover the excess from the UK.

Double Taxation Treaty (or Double Tax Agreement)

• This is an agreement between UK and another country. There are over 100 of these, and they affect persons who are residents, or sometimes nationals, of the countrie concerned. They normally:
  • Give the rules for double tax relief for specified income and gains;
  • Determine where you are to be regarded as resident for treaty purposes if you are otherwise dual resident;
  • Contain other rules relating to the persons affected by the treaty.
  
  HMRC has produced a Digest of Double Tax Treaties. This is very useful as it summarises the rules for each country in a table form for ease of reference.

Dual Residence

• You might be regarded as resident in the UK under UK law and resident in another country under that country's law. You are then said to be dual resident.

DWP

• Department for Work and Pensions, the Government department that administers social security benefits, including the state pension. Before June 2001 it was known as the Department of Social Security.
• It oversees the two agencies that administer most benefits, being Jobcentre Plus and the Pensions Disability and Carer’s Service.

Back to the top

E

EEA (see European Economic Area)

EMA (see Education maintenance allowance)

Earned income

• Income from your job or from self-employment or income you get from a pension. You need to bear in mind that some income is treated as earned income only for tax purposes and not for NIC - for example pensions.

Education maintenance allowance (EMA)

NOTE - the scheme closed to new applicants in England on 1 January 2011. The rules for other countries differ.

• This tax free benefit pays up to £30 a week directly into a young person's bank account if he or she stays on in education at school or college after they have taken GCSEs. Most young people will be able to claim EMA for two to three years depending how long their studies last.
• There is also bonuses that can be paid if the young person meets certain targets.
• EMA does not affect any other benefits the student's family might get and is paid on top of any earnings he or she might have from a part time or holiday job.
• Have a look here to see if you qualify. Note the rules for EMA differ between countries in the UK.

Elements (for tax credits)

• Working tax credit (WTC) and child tax credit (CTC) consist of a number of what are called 'elements' which a claimant may be entitled to depending on their circumstances.
• You can find more information on this in the section on tax credits.

Employed (see also self employed)

• If you work for a company or a business which is not your own and in which you are not a partner, you are likely to be employed.
• You will usually be employed if you receive a regular pay packet each week or month from which your employer has deducted tax and NIC.
• It does not matter if you work part time or have flexible hours or if you are only on a short contract.
• The rules are quite complicated and you can find out more in the section on employed v self employed.

Employer sponsored courses

• Your 'pay' from your employer during college study time may be exempt from tax if it does not exceed certain defined limits.
• You will also need to be enrolled for at least one academic year and your actual full time attendance during that period must amount on average to at least 20 weeks a year.

Employment and support allowance (ESA) - see also incapacity benefit

• Employment and support allowance (ESA) was introduced on 27 October 2008. It replaces incapacity benefit and income support, paid because of an illness or disability, for new claimants only.
• Income related ESA payments are tax free but contributory ESA is taxable.
• You can find much more information on ESA here.

Entrepreneurs relief (capital gains tax)

• Entrepreneurs relief will apply to individuals and trustees who dispose of the whole or part of a trading business, or of shares in a trading company in which they have a qualifying interest.
• For more information have a look at the capital gains tax section.

European Economic Area (EEA)

• Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Irish Republic, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom. Iceland, Liechtenstein and Norway are not members of the European Union (EU) but citizens of these countries have the same rights to enter, live in and work in the United Kingdom as EU citizens.

European Union (EU)

• Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Irish Republic, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom.

Executor

• If you have made a will, you will have named one or more executors (also called personal representatives) in the will as the person or persons who will deal with your estate for you. This can be your solicitor or other professional person but is also quite often a member of your family or a family friend.
• You may also want to have a look here.

Extra Statutory Concessions (ESC) (including A19)

• HMRC say that an ESC is a relaxation which gives a taxpayer a reduction in tax liability that they would not be entitled to under the strict letter of the law. Most concessions are fairly minor but A19 is very important to people who are unrepresented.
• ESC A19 can be claimed where HMRC delay in using information about your tax affairs and this can mean you don’t have to pay tax which, in strict law, should be paid.
  

Back to the top

F

FSAVC (see Free Standing Additional Voluntary Contribution)

Fast Track (for tax credits)

• For those disabled people who after a period of sickness have to change work to a job with lower pay or less hours, there are special rules for claiming tax credits called 'Fast Track' which can help you qualify for the disability element earlier than with the normal 'qualifying benefit test'.

Foreign emoluments

• This describes your earnings from employment where you are not domiciled in the UK and your employer is not resident in the UK or the Republic of Ireland and is resident elsewhere.

Free Standing Additional Voluntary Contribution (FSAVC)

• You can pay Freestanding Additional Voluntary Payments (FSAVCs) to a pension scheme of your own choice as well as being in the employer's scheme but the maximum contribution limit is 15% of your earnings each year.

Back to the top

G

Gift Aid

• This is a scheme for making gifts to UK charities whereby the charity can reclaim tax on the donation.
• Gift Aid also applies to gifts made to Community Amateur Sports Clubs (CASC). The relief only applies to gifts made to the CASC and not to any other payments such as membership subscriptions.
• Gift Aid is not always a good idea for non-taxpayers. For more information use this link.

Gifts to children by parents (see Children - gifts from parents)

Gifts with reservation (see Retaining an interest)

• If you give something away but then continue to enjoy a benefit in the asset or use it, you will be treated for Inheritance Tax as if you had not made the gift in the first place. A good example of this is when you give away your house to your children - they live elsewhere because they have their own homes and you continue to occupy your home after you have given it away.

Grant of Probate (see also Letter of Administration)

• Grant of Probate is a legal acknowledgement of your estate and the amount of the estate. It also states the names of your executors and thereby recognises their legal entitlement to deal with your estate.

Great Britain

• This includes England, Scotland and Wales and the islands off their coasts which are in the UK.

Gross income

• Gross income is simply income you are entitled to receive before any tax is taken off.

H

HMRC Residency

• If you live outside the United Kingdom, but have income from a source in the United Kingdom, HMRC Residency, is part of HMRC which may be able to help you with UK income tax matters.
• You can write to or e mail HMRC Residency or you can phone them - you can find their contact details here.

Back to the top

I

IHT (see Inheritance tax)

Income

• Taxable income includes for example: earnings from employment; earnings from self-employment; most pensions income (state, company and personal pensions); interest on most savings; income from shares (dividends); rental income and income paid to you from a trust.
• Non-taxable income is income that you never pay tax on. It includes certain benefits, income from tax exempt accounts such as NS & I Savings Certificates, working tax credit (WTC) and premium bond wins. These income sources are ignored altogether when working out how much income tax you may need to pay.

Inheritance tax (IHT)

• IHT is charged on gifts and other transfers of cash or assets that you make. Assets are things you own such as your house, shares or other possessions.
• Most gifts made during your lifetime will be tax-free if you live 7 years from when you make the gift.

Individual Savings Account (see ISAs)

Intestacy

• If you have not made a will when you die, you are said to be intestate. The rules of succession in Scotland are different from those in England and Wales.
• You can find out more about this topic here.

ISA

• An ISA or Individual Savings Account is a tax-free savings account.
• There is no minimum holding period but there is a limit to how much you can invest each year.
• If you move abroad you cannot take out any more ISAs but the existing ones remain tax exempt.
• The amounts that you can invest in an ISA change from time to time. From 6 April 2011, the ISA limit increased to £10,680, up to £5,340 of which can be saved in cash ISAs.

Back to the top

K

K code

• If your untaxed income exceeds your tax allowances then your coding notice may have the letter K in front of a number. It is a way of using the PAYE system to collect additional tax that you may owe. On the source of income for which the code number is issued the amount of tax paid may seem very high, but this is because there is other tax owed being collected at the same time.
• By law, the tax deducted each week/month using a K code cannot be more than 50% of your wages or pension for that period.
  

Back to the top

L

Letters of Administration

• When someone dies intestate, the administrator will obtain Letters of Administration to enable him to deal with the deceased's estate. Grant of Probate is not used in these circumstances.

Letter of wishes

• As well as making a will you can also have a 'Letter of Wishes', which will make certain requests of your executor. This type of letter is useful for giving away your personal effects and other small items, as a Letter of Wishes will be treated as if it were part of your main will.

Letting property (see rents)

Life insurance policy gains (also called chargeable event gains)

• With some insurance policies - if you make a profit when you cash it in - the gain you make is taxable. You will make a profit on the policy if the amount you get when you cash it in is more than the amount of the premiums you have paid.
• When you cash in the policy, any profit you make is free of capital gains tax.
• Have a look at the section on life insurance policy gains for more information.

Losses (see trading losses)

Back to the top

M

Maintenance payments

• If you separate or divorce and either you or your spouse was born before 6 April 1935, then a husband or wife making maintenance payments by Court Order is entitled to claim a reduction to their tax bill. The payments must be made to the ex-husband or ex-wife. Payments to or for the benefit of children do not qualify.
• The deduction to be claimed each year is set in the Budget.

MAR (see Mileage Allowance Relief)

Mileage Allowance Relief

• If you are paid less than the AMAP rate you can get tax relief against your earnings for the difference.
• This relief is called Mileage Allowance Relief or MAR. To make a claim you will need to keep a record of your business miles and the mileage allowance payments made to you by your employer.

Minimum contribution (re S2P)

• The amount of the National Insurance rebate from HMRC to your appropriate pension plan (APP) depends on your age and your earnings.
• The HMRC payment is called the 'minimum contribution' and will be paid once your earnings are known at the end of the tax year.

Back to the top

N

NINO (see National Insurance number)

National Insurance contributions (NIC) (See also Classes of NIC)

• NIC are deductions from your earnings to pay for certain State benefits.
• If you are employed, your employer will take your NIC from your salary before paying it to you - this is Class 1 NIC. Your employer may also need to pay Class 1A and 1B NIC on your behalf.
• If you are self-employed you pay two types of NIC - one is a weekly stamp - Class 2 NIC and the other is based on the level of your profits - Class 4 NIC.
• You can also pay voluntary NIC - Class 3 NIC.
• You may also be able to defer NIC or you may be able to claim an exemption if your profits are very low - small earnings exception.

National Insurance number (NINO)

• A National Insurance number is unique to you throughout your life but it is not a form of identity. It is made up of 2 letters, 6 numbers and a final letter for example ZY 98 76 54 A.
• Everyone who wants to work in the UK must have a National Insurance number. To obtain a National Insurance number you must be over 16 and resident in Great Britain or Northern Ireland.
• You can start work without one but you must then apply immediately. The law requires you to apply for a number if you do not already have one and you are working or are intending to work.
• Use the link for further information.

National Minimum Wage

• This National Minimum Wage applies to nearly all workers and sets hourly rates below which pay must not be allowed to fall. You can find current and previous rates on the Directgov website.

Net Income

• Income paid after tax has been deducted

Net proceeds

• The amount you receive from the sale of assets or the market value of any asset you give away less any costs such as legal fees.

Net relevant earnings

• If you are employed - the term 'Net relevant earnings' means your earnings from employment including any benefits in kind but less any expenses you claim.
• If you are self employed - 'net relevant earnings' basically includes your taxable profits after taking off capital allowances and losses.

Non-business asset

• A non-business asset is something you own that you use personally and not in your business or employment.

Non-earner

• You are a non-earner if you do not have a job where you work for an employer or you do not work for yourself in your own business nor as a partner in a partnership.
• In simple terms it means that you do not work in any capacity and do not therefore have any income from that work.

Non-pensionable employment

• You are in non-pensionable employment if you are not in a pension scheme provided by your employer.

Non-resident Landlords Scheme

• If you are not resident in the UK, HMRC operate a special scheme called the Non Resident Landlords Scheme on the rent you will get from letting out your house. Under the scheme your tenant will collect the tax due on the rent and then pay it over to HMRC.
• UK rental income is always taxed in the UK no matter where you live.
• Provided your tax affairs are up to date you can apply to HMRC to have your rents paid gross, that is with no tax taken off before you get them. If you own the UK property jointly with someone else - you will both need to fill in a form.
• You can download the application form NRL1 here.

Non-taxpayer

• This is someone whose income for any tax year is less than their personal allowance or less than their personal allowance together with any other allowances he may have such as blind person's allowance or married couple's allowance.
• There is a lot more information for non-taxpayers here.

Back to the top

O

Occupational pensions

• Pensions you get from your previous employer's pension scheme. Also known as works or company pension. These pensions are taxable under PAYE.
• More information can be found here.

Ombudsman (also called Parliamentary Ombudsman)

• The Ombudsman investigates cases where bad administration by any Government department has led to an injustice that has not been remedied. It is one of the stages in HMRC's complaints process.
• If you are thinking of making a complaint to the Ombudsman, have a look at their website.
• You cannot contact the Ombudsman directly in the first instance but your MP will do this for you. The Ombudsman is entirely independent.

Ordinary residence

• Being ordinarily resident in the UK means that you are resident from year to year as part of your normal life.

Overlap relief

• When you start up in business or when you have a change of accounting date you can have some profits that will end up being taxed twice because their basis periods overlap.
• When this happens you should keep a note of the amount of the overlap profit and what number of months it relates to.
• You will be able to use the relief if your business ceases or possibly if you change your accounting date.

Back to the top

P

Partnership (business)

• This is where you and any number of other people (or sometimes companies) are in business together in what we call a partnership.

PAYE Coding notice (see coding notice)

Pay As You Earn (PAYE)

• PAYE is the way in the UK that amounts of tax and National Insurance contributions (NIC) due are collected from the wages and salaries of employees. It is also the way that tax on most pensions based on past employment are taxed.
• You can find more about PAYE here.

Penalties (self assessment)

• An automatic penalty of £100 is charged if HMRC have not received your tax return in time.
• The penalty cannot be greater than the tax liability for the year in question so if you owed £50 tax for 2010/11 the penalty would be £50.

Pension credit

• Pension credit is a tax-free state benefit. It is in 2 parts, the guarantee credit and the savings credit and there are extra amounts for people with disabilities and carers. You have to be aged at least 60 to get the guarantee credit and at least 65 to get the savings credit. In a couple only one partner needs to be over 65 for savings credit to be available.

Personal pension

• Pensions from plans set up with insurance companies after July 1988. Taxable under PAYE.

Personal representative (See Executor)

Plant and machinery

• Plant and machinery are things you buy to help you run your business and which usually have a life of more than a year. These might be things such as cars, machines, scaffolding, ladders, tools, equipment and furniture. The tax system allows you to claim tax deductions for them; usually over a period of years and these deductions are called capital allowances.

Potentially exempt transfer (PET)

• Gift which will become tax free if you live for 7 years after the date you made it. If you die within 7 years the gift becomes chargeable to Inheritance tax. See also Taper relief.
• There is more information on PETs here.

Pre owned assets tax

• An income tax charge can apply where someone continues to use an asset that they have given away. The rules are complicated and little understood. Normally advice needs to be taken from a professional tax adviser.
• There is also exemption from the new charge if the IHT gift with reservation rules apply.

Probate (see Grant of Probate)

Purchased annuity

• An annuity purchased with any capital not compulsorily directed to the purchase of an annuity.
• Purchased annuities are treated for tax purposes as savings income. Part of the annuity is treated as the return of your capital and is tax free and the other part is taxed as savings income.

Back to the top

Q

Back to the top

R

Rebate only pension (see Appropriate personal pension)

Redundancy payment (see also Statutory redundancy)

• Your employer may make a payment to you when you become redundant. This is called a redundancy payment and is to compensate you for being made redundant.
• You can find more information on redundancy payments here.

Remittance basis

• This refers to the method of calculating UK tax on the amounts of income (for income tax) and capital gains (for capital gains tax) which you bring to the UK, rather than the amounts of income and gains arising.

Rents

• This is the income you get from letting out property whether the property consists of rooms in your house or other houses that you own.

Rent a room relief

• If you rent out a room in your house - the rent a room system works so that:
  • If your total receipts are under £4,250 there will be no tax to pay
  • If your total receipts are over £4,250 per year you have two options:
    • You can be taxed on the excess over £4,250 without claiming any expenses or capital allowances; or
    • You can be taxed on the full amount of your receipts but you can claim your expenses and capital allowances

Residence

• Residence normally means physically living somewhere. If you live in the UK for a certain period of time, you will be treated as being resident here.
• It is possible to be treated as resident in two or more countries at the same time.
• When you come to the UK to live, HMRC will need to know whether you have come here to work and if so for how long. Perhaps you have come to live with family and do not yet have a job planned. Your circumstances affect whether you are resident in the UK.
• Your residence status is one of the determining factors in deciding what income and gains that you have should be taxed here.
• If you would like to read about residence status in detail, refer to booklet HMRC6.

Retaining an interest

• If you give something away but then continue to enjoy a benefit in it or use of the asset.
• You can find out more about this topic here.

Retirement Annuities

• If you paid into a personal pension set up before July 1988 this was called a retirement annuity scheme. When you retire you receive an annuity and not a pension. This type of policy was called a Section 226 policy and could be linked to a life insurance policy.
• Retirement annuities are taxed under PAYE in the same way as personal pensions.
• You can find out more about this topic if you are a taxpayer here.

Revenue Account

• You may be asked to fill in a Revenue Account. This is a summary of the assets and liabilities including funeral expenses of the person who has died. HMRC will then advise you whether any IHT is due and when this will be payable.

Back to the top

S

Savings income

• Income from savings includes interest from banks, building societies, interest on UK government investments called gilts or company dividends.

Self-assessment

• You are responsible for completing a tax return if required and for paying any tax due.
• You can find more information on this here.

Self Assessment Statement - SA300

• Every so often under self assessment, HMRC will send you a Self Assessment Statement (SA300) and these forms tell you how much tax is due for payment and when, or how much they need to repay to you if you have overpaid tax.

Self employed (see also employed)

• Generally we say that you are self employed if you work for yourself or are a partner in a partnership rather than working for an employer.
• However the rules are quite complicated and you can find out more in the section on employed v self employed.

SERPs (see State Second Pension)

Small earnings exception

• If your taxable profit falls below a certain figure (which can change every tax year) you need not pay any Class 2 NIC for that year - this is the small earnings exception. You should still register for Class 2 NIC as normal but you can apply for a certificate of exception if you wish. The form you will need is CF10 - Self-employed people with small earnings which can also be obtained from HMRC.

Stakeholder pension

• Stakeholder pensions are a type of personal pension and were introduced as low charge schemes for anyone who does not do paid work or is in non-pensionable employment (i.e. does not have access to a works pension).
• If you are not earning - £3,600 is the gross amount you can contribute to a stakeholder scheme from any source during a tax year (this means that you actually pay £2,880 - which is £3,600 net of 20% basic rate tax).

State benefits

• These are benefits paid by the government which may be either tax free or taxable. They include benefits such as incapacity benefit, council tax benefit and attendance allowance. You can find out more information on each benefit by having a look at the Directgov website.

State second pension (S2P) (previously called SERPs)

• When you are working you can choose to build up an extra state pension as well as the basic pension. This is now called the State second pension (previously called SERPs).
• It is based on your National Insurance contributions record and the level of your earnings.
• You can choose to opt out (called contracting out) of S2P; if you do so, HMRC pay part of your National Insurance contributions directly to the pension provider of your choice to fund a separate pension scheme with them instead of increasing the amount in the Government scheme.
• You can find out more about S2P using the link.

Statutory redundancy (see also redundancy payment)

• If you were dismissed from your job on grounds of redundancy you may be entitled to a statutory redundancy payment. One important condition for receiving a redundancy payment is that you must have had at least two years' continuous service with your employer since the age of eighteen. The amount of your lump-sum redundancy payment depends on:
  • how long you have been continuously employed by your employer;
  • how your years of continuous service relate to a particular age band; and
  • your weekly pay, up to a statutory limit.

Student loan repayments

• You will normally start repaying your loan at the start of the tax year after you finish or leave your course but only if your annual income is above £15,000 and £2,000 for any unearned income(i.e. income from savings).

Subsistence costs

• You can normally claim costs for meals and accommodation - called subsistence costs when you are away on business.
• You can claim your expenses on your tax return or if you do not need to fill in a return - you can get form P87 - Expenses claim from your tax office. You will normally get any relief in your tax code.

Surcharge (self assessment)

• Where you have a balance of tax due on 31 January for the previous tax year - if this tax is not paid by 28 February in that year, you will be liable for a surcharge of 5% of the amount still outstanding.
• This will be included on your statement of account but HMRC will also notify you separately of the charge. The surcharge is not imposed on any payment on account also due on 31 January.
• A further 5% will be due on any tax still not paid by 31 July.

Back to the top

T

Taper relief (inheritance tax relief)

• When you make a gift and die within the seven years since the date of the transfer, there may be some inheritance tax to pay. Taper relief works so that the longer the time since the gift was made the less tax you pay.
• The relief reduces the tax due by 20% per year from 80% if the gift was made in the period 3 and 4 years before the death to 20% between 6 and 7 years before the death.
• There is more information on taper relief here.

Tax Allowances

• There are two types of tax allowance but both reduce the amount of tax you pay:
• Allowances you take off your income before you work out your tax - a personal allowance and blind person's allowance.
• Allowances which translate into a cash sum you take off your tax bill - married couple's allowance and maintenance payments.

Tax credits (see child tax credit and working tax credit)

Tax calculation (self assessment)

• When you send your tax return to HMRC, they will process the form and send you a tax calculation.
• The calculation sets out how they have worked out your tax and also explains what payments on account are due for that tax year and the current year. It is not a record of what tax you have paid - just what tax is in fact due.
• You should check the calculation and let HMRC know within 30 days of issue of any amendments that are necessary.

Tax rates

• These are the different rates of tax that will be applied to your income. You can find more information on this here.

Tax year

• A tax year starts on 6 April and finishes on the following 5 April. The tax year 2011/12 starts on 6 April 2011 and finishes on 5 April 2012.

Taxable income

• Taxable income is the total of the income that you receive (before any tax has been taken off) less your allowances. To work out taxable income we always look at the gross amount of your income. From this total you then take off your allowances to come to your taxable income.

Terminal losses

• A loss in the year your business finishes is called a terminal loss. You can also make this type of claim in addition to a normal claim for loss relief if you have other income. You do not need to claim terminal loss relief if it would be better for you to claim the normal type of loss relief.
• Basically you can claim to set a loss for the last 12 months of trading against trading income (after capital allowances) of the tax year in which the business finishes and then the previous three tax years - latest first. You will be able to use your overlap relief (if you have any) as part of your terminal loss.

Total income (see income)

Trading losses

• If you are self-employed or a partner in a business, you will make a loss in your business, whenever your expenses and capital allowances are more than your income or turnover for your accounting date.
• You work out your loss the same way as you would work out your profits for the year.
• The trading losses section of the website provides detailed information about how to use your loss.

Back to the top

U

UK

• This includes England, Scotland, Wales and Northern Ireland and most of the islands around the UK coast, including the Shetland Islands, but not the Isle of Man or the Channel Islands or Eire (Republic of Ireland).

Unilateral relief

• This means double taxation relief allowed under specific UK laws in cases where there is no double taxation treaty with the country concerned or where the treaty does not cover the case.

Untaxed income

• Untaxed income is income that is not taxed before you get it e.g. rents from letting property and interest from National Savings Income Bonds.
• There is more about rents and untaxed interest here.

Back to the top

V

VAT

• VAT is a tax charged on most business-to-business and business-to-consumer transactions in the UK. There are a number of rates charged depending on the goods and services involved and rates vary between zero rated goods and services to those charged at the standard 20%.
• If you are VAT registered business, VAT is a tax on the difference between the value of your sales and the value of your purchases. If you are a non VAT registered businesses or organisation, or a consumer, VAT is a tax on your purchases.
• You may find it useful to have a look at the HMRC Introduction to VAT and there are link to a lot of other VAT issues in the main VAT section.

Back to the top

W

Working tax credit (WTC)

• WTC is a payment to top up the earnings of low paid working people whether employed or self employed. It includes those people who do not have children.
• You can find out about WTC in the tax credits section of the website.

Back to the top