Glossary of the Main Tax Terms & Abbreviations

October 27, 2022

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Taxes are probably the most difficult part of finance that we face. Apart from the complexities of the tax system itself, various rates, benefits, and changing legislation, the language in UK tax and accounting is often hard to understand. It has a lot of specific tax terms and abbreviations that you need to know. 

Also Read:  Abbreviations in Financial Transfers Explained

When it comes to planning your taxes and filing returns, a glossary with a breakdown of tax terminology can come in handy. You can either get acquainted with it in full or find a term that you need right now.

Tax Terms

AMAP (Approved Mileage Allowance Payments) — the maximum amount set by HMRC that an employee can receive for a business trip. If your employer does not pay the full amount or does not compensate your work-related travel expenses at all, you can claim a tax refund.

At Source — a term used to show that the tax is deducted from earnings or other income before you get them. At Source commonly applies to employed (PAYE) or self-employed working under the Construction Industry Scheme (CIS).

Bankruptcy — a legal status imposed by an authorised governmental body (a court) if the debtor is unable to satisfy the creditors' claims for monetary obligations in full and to repay debts.

Basic Rate Tax — the amount deducted from the wage if a person has earned over the Personal Allowance. Currently, it is 20%. Read more about tax codes and allowances.

Benefits — a payment made by the state or an insurance company if a person has a legal right to receive it. The employer may also provide benefits, such as health insurance at the expense of the company, car allowance, work expenses, and interest-free loans, which will influence Personal Allowance.

Capital gains refer to profits gained from the sale of capital assets. Almost everything someone owns and uses for investment purposes is a capital asset. This includes a home, personal-use items, vehicles, stocks, or bonds held as investments.

CIS (Construction Industry Scheme) — the scheme that establishes the procedure for self-employed workers to receive payment from contractors. A tax of 20% is usually deducted by the contractor and paid to HMRC on behalf of the employee. Deductions are considered advance payments for taxes and National Insurance. There is a need for contractors and employees to register to participate in the scheme.

CIS Card — a card that shows data on the registration of a person in the Construction Industry Scheme. The CSCS card is another card that shows a person's skills and qualifications.

Coding Notice — a letter from HMRC informing about the change in the tax code. It is crucial to check the correctness so that the person does not overpay or underpay the tax. The Coding Notice contains the notes for each item in the calculation of the code. The PAYE coding notice is called the P2 form and is usually published at the beginning of each tax year.

Enquiry — a process where HMRC asks questions to verify the correctness of the data specified in the tax return or to confirm whether a person is entitled to a tax refund. HMRC investigates through correspondence, meetings, and checking taxpayer records.

ESA (Employment and Support Allowance) — a government benefit or social payment in the UK for adults under retirement age who cannot find work due to a health condition or disability. 

Expenses — an amount of money that an employee (PAYE) spends on travel, meals, tools, uniforms, lodging, or costs for working from home. The self-employed can claim tax relief on all expenses related to their work. 

FRE (Flat Rate Expenses) — employee tax benefits based on work-related expenses. They are called “flat rate” expenses because a person claims a flat rate of tax benefits set by the government, regardless of individual expenses. The flat rate expenses are specified by HMRC and vary by industry and position. If an employee had to spend money on things that need to be bought for work, the Flat Rate Expenses scheme facilitates claim tax relief.

Gross Income — the amount that a person has earned before any deductions like taxes or National Insurance were made. Gross income can also be called gross pay. 

HMRC — His Majesty's Revenue and Customs is a non-ministerial government department that deals with taxes, reliefs, and schemes for businesses.

Higher Rate Tax — the upper band of income tax, currently, it is 40%. Higher Rate Tax is the amount of income tax a person needs to pay per year, depending on how much income exceeds personal allowance and how much of the income falls into each tax band.

Investment Income — profit that comes from interest payments, dividends, capital gains collected as a result of the sale of a security or other assets, and other profits.

JSA — a state benefit paid by the Department of Social Protection if a person is unemployed, but has the opportunity and is actively looking for work. It is possible to apply for Jobseeker's Benefit or Jobseeker's Allowance.

Net Income (Net Earnings) — the income that a person or organisation receives after all deductions, including taxes, fees, contributions to public funds, National Insurance, etc. To calculate Net Income, take gross income and subtract expenses.

National Insurance —contributions in favour of the state, which people and organisations pay in order to receive certain benefits, for example, a state pension. Before paying for National Insurance, it is necessary to get a unique number. There are several classes of National Insurance. The type of payment depends on employment status, earnings, and some additional criteria. Employees are exempt from 1st class National Insurance contributions as soon as they reach retirement age. 

NI No. or National Insurance Number — a unique individual number that makes sure a person's taxes and NI contributions are recorded against their name.

P11D — an HMRC form, also known as the Expenses and Benefits form. The document highlights all taxable benefits that an employee can receive from an employer. This includes, for example, medical insurance and a company vehicle.

P45 — an HMRC form, that an employer issues to an employee upon dismissal from work. The document indicates the amount that a person has earned and the amount of taxes paid in the current year.

P60 — an HMRC form, also known as an End of Year Certificate. This document shows a person's total earnings and tax paid during one tax year. An employee should receive this form from an employer annually.

PAYE — an abbreviation that stands for Pay As You Earn. This is a standard employee tax scheme in which an employer deducts taxes and National Insurance from the salary before paying it.

Personal Allowance — the amount that a person can earn in a year without a need to pay taxes. This is a limit above which the income tax from an individual is charged. Today, the standard Personal Allowance is £12,570, but it can be higher or lower in some cases. 

SA1 — a form that represents an application for a person or organisation to obtain a Unique Taxpayer Reference (UTR) number. This document registers a person for filing self-assessment tax returns. Typically, the form is used by people who are not self-employed but still need to register.

SA302/ Tax Calc — a letter from HMRC informing a person or organisation that either an overpayment or underpayment of taxes has been recorded.

Self-Assessment — this is the system established by HMRC for collecting income tax in the UK. The employer pays taxes for employees by automatically deducting the required amount from wages. Self-assessment is applied to people and businesses who earn income in other ways, including being self-employed. They must report this on their tax return, that is, keep a Self-Assessment record. A record includes the details of any tax returns completed by the person held by HMRC.

Self-Assessment Tax Return — a document, which has the purpose of informing HMRC about the gross income received, for which a person needs to pay income tax. The system helps to calculate the tax due. This is necessary not only for self-employed people. For example, an employee (PAYE) may also need to file a tax return due to certain obligations. Failure to do so means a serious fine from HMRC.

Self-Employed — people who do not work for hire, but for themselves. This includes the sale of goods and the provision of services. The person is classified as a sole trader or self-employed, even if he or she has not yet reported this to HMRC. Partners are also classified as self-employed. It is necessary to register and comply with the rules of taxation of the self-employed and National Insurance. 

Subcontractor — a person who performs construction work for the contractor, but is not an employee of the contractor. If a person is classified as a subcontractor in the CIS, it means that the tax will be deducted from the income a person gets.

Tax Refund (Tax Rebate) — the amount individuals and legal entities get back from HMRC (the budget and state funds) if they have overpaid taxes. According to the law, if you travel to a temporary job and pay to get there yourself, you can get a tax refund. 

Tax Year — the period of time at the end of which the tax base is determined and the amount of tax payable is calculated. In the UK, the tax year annually starts on the 6th of April and ends on the 5th of April the following year.

Tax Credit — an amount of money that taxpayers can subtract from their taxes. This is not the same as tax deductions. By the end of 2024, tax credits will be replaced by Universal Credit. Anyway, you still can have benefits from the Tax Credit and prepare for the new system. In the UK, you can use an official tax credit calculator to learn more about your tax credit possibilities or get all the detailed information at Gov.UK. 

Tax Liability — the total amount of tax debt owed to a government by an individual, corporation, or other entity. Income taxes, sales tax, and capital gains tax – forms of tax liabilities. You can lower your tax liability by claiming deductions, exemptions, and tax credits.

UTR (Unique Taxpayer Reference) number — a unique 10-digit number that is used to identify a taxpayer (person or organisation). It connects a taxpayer with HMRC in all matters related to tax obligations.

WRA (Working Rule Agreement) — is a national industrial agreement with the construction industry that sets minimum wage rates, travel expenses, and death and accident benefits. WRA is concluded between trade unions and employers, establishing conditions applicable to certain categories of workers with hourly pay.

Read more about corporation tax in the UK.

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