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Abroad: A country other than England, Northern Ireland, Scotland and Wales where UK tax laws do not apply.
Accountant: A person whose job it is to prepare accounts and give you tax advice. They can also liaise with the Inland Revenue on your behalf.
Accounting and audit fees: Fees paid to an accountant for preparing business accounts for an audit. These fees are tax deductible.
Acquisition: Term used when you buy (acquire) something.
Accounting date: The date when the accounting period ends. For example, if your accounting period runs from 1 July 2005 to 30 June 2006, the accounting date would be 30 June 2006. There is no restriction on when you choose to have your accounting date, unless you want to change it more than once during a five year period. In this case, you will need the approval of the Inland Revenue.
Accounting period: The period for which accounts are prepared. An accounting period should not normally be longer than 18 months. A common accounting period is from 6 April to 5 April.
Accruals basis of accounting: The method of accounting which adjusts for accruals at the beginning and end of the accounting period, so that the income included in the accounts is that earned during the accounting period, and the expenses are those incurred during the accounting period. For example you should include sales you have made but which you have not yet been paid for, and the cost of electricity which you have used but have not paid for, even if you have not yet been billed for it.
Accruals: Provisions for income earned but not yet billed, or for expenses incurred but not yet paid. Examples are the amount of sales you have made but which you have not yet been paid for, and the cost of electricity which you have used but have not paid for, even if you have not yet been billed for it.
Accrued income: The accrued income scheme applies to Treasury Stock, Building Society Permanent Interest Bearing Shares (PIBS) and so on. You are only taxed on the amount of interest earned over the period for which you hold the Treasury Stock, PIBs and so on. You may need to make an adjustment to the interest you actually receive to calculate the amount of interest liable to tax.
Accumulation units or shares: You receive extra units or shares instead of a cash distribution. You need to declare the dividend as though you received it in cash. This amount is the capital gains tax base cost of the extra units or shares that you have received.
Additional age related allowance: Once you are 65 or over, you are entitled to receive an increase in your personal allowance and married couple's allowance. The amount your allowances are increased depends on how much taxable income you receive. You will be entitled to a higher increase if you are 75 or over.
Additional personal allowance: This is an additional allowance that you can claim if you are single, separated, divorced or widowed and have a child living with you. The child must be under 16, or in full time education or training. You can only claim one allowance, and the amount you claim may be restricted if you marry or separate during the tax year. Exceptionally, you may be able to claim the allowance if your spouse is unable to care for themselves because of illness or a disability.
Additional voluntary contributions: You can make "additional voluntary contributions" to enhance your pension if you belong to an employer's pension scheme. You can pay these additional contributions into your employer's pension scheme or your own FSAVC Scheme (Free Standing Additional Voluntary Contributions). There is generally a maximum limit of 15% of remuneration in the case of Inland Revenue approved schemes.
Age related allowance: If you are aged 65 or over, you are entitled to receive a higher personal allowance and married couple's allowance. The additional amount of these allowances depends on how much taxable income you receive. The age related allowances are further increased if you are 75 or over.
Agency worker: Someone who is provided by an employment agency to work for a third party. The contract for the work is between the agency and the third party. The agency worker is taxed as an employee of the agency.
Alimony: A payment made to a former spouse following divorce or a legal separation.
Allowable business expenses: Expenses incurred in the running of your business which you may deduct from the gross trading income before calculating the taxable profit and loss.
Allowable deductions: Inland Revenue approved deductions that you can deduct from your net income to reduce your tax liability.
Allowable expense: An expense which you can deduct from your income or capital gains. For example, you can deduct allowable business expenses from trading income, and allowable rental expenses from the income from letting property. Your tax liability will be calculated on the net income (gross income minus allowable expenses) or on the net gains (gross capital gains minus allowable expenses).
Allowable losses: A loss that you can deduct from your income or capital gains. There are strict rules restricting the way in which loss relief can be claimed. Examples of losses that may be allowable are trading losses, losses on letting out land and buildings and capital losses from the sale of shares and other assets.
Allowance: A deduction or relief which you may be able to claim depending on your circumstances. Most people can claim a basic personal allowance, but other allowances available are the additional age related allowances for the elderly (income related), the married couple's allowance, the additional personal allowance for single people bring up children, the widow's bereavement allowance and the blind person's allowance.
Allowances for care of invalid spouse and child: Another name for the additional personal allowance which you can claim if you have a child and your spouse is totally incapacitated throughout the tax year.
Annual exemption: Amount which is exempt from tax in any one year. For capital gains tax, you are allowed to make gains of £6,800 (for 1998/99) before you need to pay capital gains tax. For inheritance tax purposes, you are allowed to give away £3,000 per annum without the gifts being taken into account.
Annual percentage rate (APR): This is a formula intended to give you the true cost of borrowing money. It is calculated as the interest that would be charged over the course of a year.
Annuity: A sum of money which is payable regularly. You can pay a lump sum to an insurance company to buy an annuity. The insurance company pays you an income, usually for the rest of your life. The amount of income is fixed at outset. You cannot usually get your lump sum back. Pensions from retirement annuity contracts and personal pension plans are usually paid as annuities.
Approved discretionary share options: Schemes approved by the Inland Revenue under which you can be granted options over shares worth up to £30,000 in your employer's company. Provided the options are not exercised within 3 years of being granted or within 3 years of the exercise of an option under any approved discretionary share option scheme for which Income Tax relief was given or more than 10 years after their grant, there is no income tax charge on the exercise of the options.)
Approved savings-related share options: Schemes approved by the Inland Revenue under which you are granted options to buy shares in your employer's company. They are linked to Save As You Earn SAYE Schemes. The contributions you make to the SAYE scheme, together with tax-free bonuses, may be used to buy the shares at the end of the term of the SAYE scheme. Most SAYE schemes last for three years.
Approved share schemes: Share schemes approved by the Inland Revenue that have various tax advantages. These include "Approved Discretionary Share option" schemes. "Approved Savings Related Share option" schemes and "Profit Sharing" schemes.
Arising basis: This term means that you are taxed on (foreign) income based on the date when the payment is due. You do not have to receive it to be taxed on it. People who are UK Domiciled are usually taxed on the arising basis.
Artistic: Artistic income is income from the sale of paintings, sculptures, works of art, copyrights and designs. Artistic income may be spread backwards for one or two years; copyright payments may be spread over the period of the agreement up to a maximum of six years.
Assessment: Before self assessment was introduced, the Inland Revenue calculated your tax and then issued an assessment showing any tax you owed. These types of assessments are now not normally issued. An assessment may be issued if you have omitted income from your Tax Return if the deadline for raising enquiries by the Inland Revenue has passed.
Asset: Something that you own. An asset could be anything from a stamp collection, antique, shares in a company or property or even something intangible.
Authorised unit trust: A unit trust is a trust that invests its funds in a spread of equities or fixed interest securities. A professional manager runs the portfolio. An authorised unit trust is one which can offer units for sale to the general public. You buy units in the unit trust, the amount you pay being added into the unit trust's funds. The price you pay for the units is based on the value of the unit trust's investments. You can sell your units back to the unit trust at any time. There is a difference between price at which you can buy and sell units, known as the "bid/offer spread".
AVC's: Acronym for "Additional Voluntary Contributions". You can make "additional voluntary contributions" to enhance your pension if you belong to an employer's pension scheme. You can pay these additional contributions into your employer's pension scheme or your own FSAVC Scheme (Free Standing Additional Voluntary Contributions). There is generally a maximum limit of 15% for remuneration in the case of Inland Revenue approved schemes.
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Backwards or forwards spreading: A tax relief which enables authors and artists to spread their income forwards or backwards. It recognises the time taken to complete the work giving rise to the income. You may spread income back for two years if it took you between one and two years to create the work, or back for two years if it took more than two years to create. Forwards spreading may apply if you receive a lump sum instead of future annual royalties.
Bad debts: If a customer of a business fails to pay the bill for goods or services received, the unpaid amount is a "bad debt". Although the sale is included in the declared turnover, the bad debt is an allowable expense. Where tenants fail to pay rent due, the bad debts are allowable rental expenses.
Balancing allowances: A type of capital allowance that may be given if you sell an asset for less than its tax written down value. Balancing allowances are not given on items of plant that are included in the general capital allowances pool until the business ceases.
Balancing charge: Withdrawal of some or all of the capital allowances previously given. They arise when fixed assets stop being used in your business. Balancing charges may be made on the general capital allowances pool if the proceeds of sale of pooled assets exceed the tax written down value of the whole pool.
Bank: An approved company that accepts monetary deposits or loans money. In the UK, the Bank of England approves all banks.
Bank charges: Charges raised by a bank for the day to day running of your bank account such as overdraft charges, charges levied on the number of cheques issued and so on.
Bare trust: Bare Trust is a term used to describe a situation where one party (party A) holds an asset (such as shares) on behalf of another party (party B). The income arising on the asset is taxed as part of party B's taxable income, and any capital gains as part of party B's capital gains.
Base rate: Most interest rates are linked to the Base Rate. The Bank of England meets monthly to decide what the base rate should be set at. The base rate determines how much other banks and building societies pay for loans they take out from the Bank of England. These base rates in turn affect the interest rate you pay for loans.
Basic rate tax: For 2008/2009, the basic rate of income tax is 20%. Any income between your tax free allowance and £37,400 (the basic rate band) is taxed at 20%, and tax at the higher rate (40%) on any income in excess of £37,400.
Basis of accounting accruals: The method of accounting which adjusts for accruals at the beginning and end of the accounting period, so that the income included in the accounts is that earned during the accounting period, and the expenses are those incurred during the accounting period. For example you should include sales you have made but which you have not yet been paid for, and the cost of electricity which you have used but have not paid for, even if you have not yet been billed for it.
Basis of accounting cash: The method of accounting which only includes income actually received during the accounting period and expenses actually paid during the accounting period. Some business use a modified cash basis, including income when it is received, but including expenses on an accruals basis. You may not use the cash basis for accounting periods beginning on or after 7 April 1999.
Basis period: The period used to identify the profits taxable in any particular tax year. Normally the Basis Period is the same as the accounting period, but special rules apply in the first three tax years of trading, on a change of accounting date, and on cessation.
Beneficiary: Someone who receives a benefit from someone or something. Most commonly used to refer to a person who receives income or capital from a trust, or from the estate of a deceased person.
Benefits Agency: An agency belonging to the Department of Social Security which is responsible for calculating entitlement to, and for paying, state benefits such as Income Support and so on.
Benefits (from employment): Part of your remuneration package paid not in cash, but in kind. Includes the use of company assets such as company cars, low interest loans and so on.
Benefits (State): Benefits which the Government pays to certain individuals in certain situations.. Examples are jobseeker's allowance, incapacity benefit, disability benefits and so on.
Blind person's allowance: An extra allowance you are entitled to if your sight has failed and you are registered as blind (registers do not exist in Scotland or Northern Ireland).
Bonus issue: A free issue of shares to existing shareholders in proportion to their existing shares. This is the same as a Scrip Issue, but is not the same as a scrip dividend.
Bonuses: An extra reward paid by employers to employees either at a certain time of the year such as at Christmas, or in recognition of a good performance. The bonuses can be anything from cash to a holiday or a valuable asset.
Books, magazines, references: If you are self employed, the cost of books, magazines and reference sources are tax deductible provided they are used for business purposes. If you are employed by a third party, it is very difficult to get tax relief as they must be bought "wholly, exclusively and necessarily" in the performance of the employment.
Branch sort code: Used by the bank to identify which branch of that bank holds your account. It is a series of 6 numbers, which are normally found in the top right hand corner of your cheques.
Building society: Similar to a bank but owned by members of the building society rather than shareholders in a company (bank).
Business: Broadly, you are in business if you are trading with a view to making a profit. There are criteria to differentiate between a business and a hobby. If in doubt, contact the Inland Revenue, accountant or Tax Advisor.
Business expenses: Expenses of a business incurred in earning the profits of the business. Not all business expenses are allowable for tax purposes.
Business income: Income derived by the business from sales, fees and so on.
Business losses: Losses made by a business where business expenses exceed business income. You need to adjust business losses to arrive at allowable losses for tax purposes.
Business start up allowance: A government benefit paid to assist unemployed people in setting up their own business. Payments are taxable. Now more commonly known as Enterprise Allowance.
Business travel: Travel between places of work, or to a place of work to carry out duties there, but excluding private travel and ordinary commuting.
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Cancellation: If your share options are cancelled, you will no longer be able to exercise your options to buy shares. Any payment you receive for the cancellation is taxable.
Capital allowances: Allowances against tax for the cost of certain fixed assets. Charges may be imposed to take back capital allowances if you sell capital assets for more than the tax written down value. Capital allowances may be given for plant machinery and industrial buildings, and are also available on agricultural buildings and hotels.
Capital gains: If you sell a chargeable asset for a profit (after deducting expenses and releifs see capital gains calculation) you make a capital gain.
Capital gains calculation: Term used to describe the calculation of the taxable "profit" or allowable "loss" you made on selling a chargeable asset. Broadly it is sale proceeds, less cost, less indexation allowance from the date you bought it to 5 April 1998.
Capital gains expenses: These include costs of buying and selling an asset. For example, fees charged by stockbrokers or auctioneers and any initial valuation costs. These expenses can be deducted in the calculation of the capital gain or loss on the disposal of the asset.
Capital gains indexation allowance: An adjustment for inflation between the date you bought an asset and the date it is sold. For individuals, this allowance was frozen with effect from 6 April 1998.
Capital losses: If you sell a chargeable asset and the result of the capital gains tax calculation is a loss rather than a profit, that is a capital loss.
Capital gains tax: Tax charged on capital gains that you have made.
Carry back: Sometimes you can claim for a loss you have made, or for a payment you have made, to be deducted from your income or capital gains in a tax year earlier than that in which the loss or payment was made. For example you may claim for a trading loss to be set against your income in the tax year before that in which you made the loss.
Carry forward: Sometimes losses cannot be fully tax relieved in the year they were made. The unused amount is carried forward for tax relief in a later tax year. Some unused reliefs, such as unused personal pension relief can be carried forward, but only for a specific period of time.
Case (court): Where you dispute the meaning of the tax legislation, the matter can be resolved in the law courts. The outcome is then known as a tax case.
Casual earnings: Income you get from irregular work.
Cash equivalent value: You might have taxable income in the form of an asset, or the right to use an asset, rather than in cash. There are rules for determining the amount of the taxable income. The taxable amount is called the cash equivalent value.
Cash fraction: If you are allotted shares (such as from a scrip dividend or where you receive shares in a new company following a takeover) your allocation may not be a whole number of shares. The company may arrange for all the fractions of shares to be sold, and the proceeds distributed between those who were entitled to fraction of shares. The amount you receive is called a "cash fraction".
Certificate of tax deposit: If you have, or think you may have, a tax liability, you can buy a Certificate of Tax Deposit in advance to pay the liability. These are purchased from the Inland Revenue. You receive interest on the funds from the date of purchase to the date the liability becomes due. You can also withdraw the funds in cash, but you will receive a lower interest rate. The interest is taxable. (Back to top)
Chargeable asset: Assets which, when sold, are subject to capital gains. This includes assets such as shares, second homes, investment properties, works of art worth more than £6,000. Some assets are not liable to capital gains tax when sold. Examples are your home (subject to certain conditions regarding periods of absence and business use), motor cars, gilts and investments held in Personal Equity Plans (PEPs).
Chargeable business assets: Assets which are used in a business, and would be subject to capital gains tax if they were disposed of. An example is your business premises. Investments, such as shares, owned by a business are chargeable assets, but not chargeable business assets.
Chargeable event: A chargeable event may occur when cash or benefits are received from a life insurance policy, life annuity or capital redemption policy.
Chargeable gains: A chargeable gain is the profit you made on the disposal of a chargeable asset, calculated after deducting all allowable expenses and reliefs.
Chargeable premiums: If you receive a premium for the grant of a lease of land and property for 50 years or less, you will be taxed on a proportion of the premium as if it were additional rent that you receive. The chargeable premium depends on the term of the lease. It is the premium you receive, reduced by 2% for each full year of the lease other than the first. Thus if you grant a 10 year lease, you will be taxed on 82% of the premium as additional rent.
Charitable covenants: Regular payments made to a registered charity under a written deed. The charity reclaims the basic rate tax you have deducted and you receive higher rate tax relief if you have sufficient income.
Charity: An organisation which raises funds to pass onto people in need, for educational purposes, the advancement of religion or for the general benefit of the community.
Child minding expenses: Fees paid for someone to look after your children whilst you are at work. They are not tax allowable.
Children: People under the age of 18. May also be used to refer to your son or daughter, even if aged 18 or over.
Class: national insurance contributions are divided into four classes. The class you pay depends on whether you are an employee, are selfemployed or are paying voluntary contributions.
Class 1 national insurance contributions: national insurance contributions charged on your earnings if you are an employee. They grant entitlement to contributory social security benefits. Employers also pay class 1 and 1A national insurance contributions, but these do not grant entitlement to social security benefits.
Class 2 national insurance contributions: Weekly national insurance contributions that you must pay if you are selfemployed or in partnership. They grant you entitlement to some contributory social security benefits.
Class 3 national insurance contributions: Weekly national insurance contributions that you may pay voluntarily to build up entitlement to some contributory social security benefits.
Class 4 national insurance contributions: national insurance contributions charged on your business profits if you are selfemployed, and on your share of partnership business profits if you are trading in partnership. They do not grant you any entitlement to social security benefits.
Clogged losses: Clogged losses are losses which can only be set against gains of certain types. These are:
Close company: A company which is controlled by 5 or fewer shareholders, where the term "shareholders" include immediate members of their family. The majority of private companies are "Close". Ask the company auditors for confirmation if you are not sure.
Commonwealth citizen: Someone who is a citizen of a Commonwealth country.
Company car: A car which is provided for you by your employer. (Back to top)
Compensation: A sum of money you receive if you give something up such as your employment or the right to use an asset.
Computer software: If you are in business and you bought business software with a useful economic life of less than 2 years, the cost of the software is fully tax deductible as a business expense in the tax year of purchase. Otherwise, the software is a capital purchase and you can claim capital allowances as if the software was an item of plant and machinery.
Concession: Something which the Inland Revenue allows in practice, although it would not strictly be allowed under the terms of the tax legislation. For example luncheon vouchers of up to 15p per day are tax free under an Inland Revenue concession.
Contractedin: You are contractedin if you are not a member of your employer's contractedout pension scheme and do not contribute to an appropriate personal pension plan. You will receive a state earnings related pension if your earnings exceed the national insurance lower earnings limit.
Contractingout: The act of opting out of the state earnings related pension scheme (SERPS), either through membership of the employer's contractedout pension scheme or by contributing to an appropriate personal pension plan.
Contributions Agency: An agency that was part of the of the DSS (Department of Social Security) and which, until 6 April 1999 was responsible for dealing with the collection and recording of national insurance contributions. On 6 April 1999 it was merged with the Inland Revenue, becoming the National Insurance Contributions Office (NICO).
Contributions: Sums of money which are paid towards something. Commonly used to refer to payments into schemes, such as pension schemes, Save As You Earn (SAYE) schemes and so on.
Convertibles: Term used for company loan stock which at certain predetermined dates can be exchanged or "converted" into something else, usually into ordinary shares in the company. The terms of the conversion are usually set when the loan stock is issued, and the value of the loan stock will move in line with the value of the shares.
Corporate bonds: These are issued by companies when they want to raise capital. They are loans to the company which are repayable at or between set dates.
Council tax: Payable to your local council in return for services and amenities. The amount payable is determined by the value of your house and what council tax band it falls into.
Covenants: Regular annual payments paid using funds from your taxable income under a legally binding agreement. Most commonly used for regular payments to charities, but may also be used for certain payments in connection with your business, such as payments to retiring partners.
Crystallised: If a deferred gain is crystallised it becomes chargeable to capital gains tax. A deferred gain will be crystallised if one of several defined events occur. For example a gain deferred under the enterprise investment scheme (EIS) deferral relief scheme will crystallise if you sell your EIS shares.
Cumdividend: If you sell a share just before the date you become entitled to a dividend, the share is sold cumdividend. The purchaser of the share(s) then receives the dividend.
Current-year basis: If you are entitled to income in 1999/2000, it is taxed in 1999/2000. With the introduction of self assessment, all income is generally taxed on this basis. The currentyear basis is modified when it is applied to businesses. The business profits taxable in 1999/2000 are normally the profits of the accounting year ending in 1999/2000.
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Death benefits: Benefits paid to a beneficiary upon the death of a person. These benefits can include payouts from a pension scheme or life insurance policy.
Debt collection: The means of chasing payment of an outstanding liability. If you have an outstanding debt and employ a professional debt collector, the costs of employing such a service are an allowable tax deduction.
Debtors: People who owe you money. You need to include in your business accounts any sales that you have made even if you have not collected the money for them. If you have a balance sheet, debtors will appear as an asset of your business.
Deduction: Something which reduces the amount of your taxable income or your chargeable gains. A business expense, such as the purchase of stationery supplies, is a deduction that can be used to reduce the amount of your taxable business profits. Indexation allowance (to April 1998) is a deduction that can be made in the calculation of your chargeable gain on the disposal of an asset.
Deed of covenants: Regular annual payments paid using funds from your taxable income under a legally binding agreement. Most commonly used for regular payments to charities, but may also be used for certain payments in connection with your business, such as payments to retiring partners.
Deferment: You can apply to the DSS (Department of Social Security) to defer payment of national insurance contributions if it is likely that you would otherwise pay more than the permitted maximum, or if some of your business income is liable to Class 1 employees national insurance contributions. Any remaining liability is collected by the DSS after the end of the tax year. (Back to top)
Deficiency relief: Tax relief given on the maturity, surrender or sale of a life insurance policy, if the excess of the total receipts from the policy over the total premiums paid is less than the amounts that have already been taxed on partial surrenders and withdrawals in earlier tax years. The relief cannot exceed the amounts which have already been taxed.
De minimis: A lower limit below you need not do something. For example, if you have given your children money and they receive interest on that money, you do not need to include that income on your Tax Return if it is less than a de minimis limit of £100.
Department of Social Security: The Department of Social Security (DSS) oversees the Benefits Agency (which deals with the payment of state benefits), and until the 6 April 1999 was responsible for overseeing the Contributions Agency (which dealt with the collection and recording of national insurance contributions).
Dependent child: Any child under 16, or a child aged 16 or over who is in full time education or who needs full time care.
Deposit: Sum of money which is placed with a deposit taker (a bank for example), usually in exchange for interest on the money deposited.
Deposit takers: Bank of England approved organisations that can accept deposits generally banks, building societies and so on. (Back to top)
Depreciation: A deduction from business profits made to write off the cost of capital assets over their expected useful lives. Depreciation is not an allowable expense for tax purposes, but is capital allowances given an equivalent kind of tax deduction.
Director: Someone who is appointed to a position high up in a private or public company and "directs" how the business is run.
Directors' fees: Fees paid by a company to its directors. May be paid in addition to salary and other benefits.
Disabled persons tax credit: A form of social security disability benefit, payable to disabled people who are in employment and have a PAYE code. The benefit is normally awarded for a period of twenty six weeks. From April 2000 the claimant's employer is instructed to make payments with salary or wages on behalf of the Government . The employer does not know on what basis the benefit entitlement or amount has been worked out. The DPTC paid out (as far as the employer is concerned) is met out of the total tax and NIC which is deducted through the payroll and which the employer would normally hand over to the Inland Revenue. For this reason the payment is called a tax credit. However it is not a true tax credit in the hands of the recipient and does not require to be reported on your tax return. Nor should it enter into any calculations you or the Inland Revenue may make of your outstanding tax liability or rebate due at the end of the tax year.
Disallowable expenses: Expenses which, although charged in your business accounts, are not tax deductible. The disallowable expenses must be added on to your trading profits when you calculate your taxable profits, and hence tax liability.
Discounted securities: Certain redeemable securities that were issued at a price lower than the amount that will be paid when the securities are redeemed. The securities must have been issued after 13 March 1984 at a discount exceeding 15% of the redemption value, or ½% of the redemption value for each year between issue and redemption. Does not include ordinary shares and indexlinked securities.
Discretionary trusts: Trusts where the trustees can choose how to allocate the income and/or capital between the beneficiaries. They may also have the power to accumulate income rather than paying it out to beneficiaries every year. The trustees' powers are specified by the trust deed.
Dispensation: An agreement between an employer and the Inland Revenue that particular expenses paid to employees are genuine business expenses. The expenses are not reported on the forms P11D or P9D and must not be included on the employees' own Tax Returns.
Disposals: Term used for the sale, gift, loss or exchange of an asset or part of an asset. (Back to top)
Distribution: In general terms, money which is paid by a company or unit trust manager to a shareholder or unit holder. The distribution may be in the form of an asset rather than in cash. The payment is made out of accumulated profits.
Dividend: Money which is paid by a company or unit trust manager to a shareholder or unit holder. The payment is made out of accumulated profits.
Dividend distributions: Open ended investment companies (OEICs) and unit trust managers make dividend distributions to shareholders from the dividends that they have received from their underlying investments.
Dividends exdividend: If you sell a share just after the date you become entitled to a dividend, but before the date the dividend is paid out, the share is sold exdividend. You are still entitled to receive the dividend.
Dividends stock or scrip dividends: A dividend which you have elected to receive in shares instead of cash.
Dividends cumdividend: If you sell a share just before the date you become entitled to a dividend, the share is sold cumdividend. The purchaser of the share(s) then receives the dividend.
Dividends and other qualifying distributions from UK companies: In general terms, this is a dividend which is paid to a shareholder in the form of an asset (shares or property owned by the company for example) or cash. The payment is taken out of accumulated profits and the tax credit deducted by the company is repayable (in certain situations).
Dividend rate tax: For 1999/2000 the rate of notional tax suffered on UK dividends is 10%. An income tax credit equal to the 10% notional tax (rounded to the nearest penny) attaches to the dividend, and the amount of tax credit is advised to you on each dividend voucher. For income tax purposes your dividends are valued at 10/9 of the amount actually received, which amounts to adding back the tax credit on each voucher. The amount thus obtained is the "grossedup dividend". Your final liability to tax (on the grossedup dividend) is :
10% on dividend income falling within the lower or basic rate income bands (i.e. up to total taxable income of £28,000), and
32.5% on dividend income falling within the higher rate band.
The 10% tax credit is treated as meeting the basic rate liability. From 6 April 1999, the notional tax credit on dividends is not repayable to individuals in any circumstances, even if they have no actual liability to tax on their dividend income (for instance because they have large personal allowances or losses which absorb all income). The 10% dividend tax credit is however repayable to PEP managers , who can reclaim the 10% notional tax on dividends received within the PEP.
If you are a starting or basic rate taxpayer, you have no further tax liability on your dividends for 1999/2000 as the tax credit meets your liability in full. However you should still report all the dividend received on your tax return, in order to be sure that your total income does not in fact exceed the threshold for higher rate tax.
If your total taxable income including grossedup dividends exceeds £28,000, the dividends are deemed to be the top part of your total income. Therefore the 32.5% tax rate will apply to the part of your income exceeding £28,000 and represented by the dividends. This special higher rate of 32.5% (on the grossedup dividend) equates to further tax amounting to onefifth (20%) of the actual (net) dividend received.
DOM 1: An Inland Revenue questionnaire that helps determine your domicile (the country where you intend your permanent home to be).
Domicile: Your domicile is the country where you intend your permanent home to be. This can be different from the country you currently live in. The rules for determining where you are domiciled can be complicated and if you live in the UK but think you may be domiciled elsewhere you should consult a Tax Advisor.
Domicile of choice: The country you have chosen as your permanent home but which is different from your domicile of origin or dependency.
Domicile of dependency: Applies to children aged under 16. Their domicile (permanent home) follows the domicile of parents until they reach 16, at which time they can change to a domicile of their choice.
Domicile of origin: This will normally be the domicile (permanent home) of your father (sometimes your mother) when you were born.
Double taxation agreement: An agreement between governments of two countries to resolve taxation issues. They are designed to stop income being taxed twice.
Double taxation relief: Taxation relief given where income would otherwise be taxed in two countries.
Draw down: If you have contributed to a retirement annuity contract or personal pension plan, you can defer using the accumulated funds to purchase an annuity until you reach the age of 75. Between retirement age (usually 50) and the age of 75 you can, within set limits, draw income from your pension scheme. This is called "income draw down".
Dual resident: A term used to describe you if you are resident in two or more countries at the same time.
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Earned income: Income deriving from an employment with an employer, office you hold (such as a directorship) or income from a trade that you perform either alone or in partnership.
EEA: Acronym for the European Economic Area.
EIS: Acronym for Enterprise Investment Scheme.
EIS deferral relief: If you subscribe for shares in an unquoted trading company, you can claim to defer all or part of a gain that you have made on the disposal of other assets. This is called enterprise investment scheme (EIS) deferral relief. There are strict conditions which must be satisfied before you can claim the relief.
Elections: You can make an election if you want your income or gains to be taxed in an alternative way. There are strict time limits for elections, and you must normally satisfy specific conditions before you can use the revised treatment.
Elections that you can make include the allocation of the married couple's allowance between spouses, an election to treat a second house as your main residence even though you live in the first house, and an election (a rebasing election) to treat the assets you owned on 31 March 1982 as if you had bought them on that date.
Emoluments: The amount of income you receive from your employment. This income includes your salary commissions, and benefits such as the provision of a company car, use of a mobile phone and payments of expenses, such as travelling and subsistence costs.
Employed: If you work for someone else, then you are employed.
Employee: A person who is employed by an employer under a contract of service whether written or implied. (Back to top)
Employee contributions: If you are employed and make payments into a pension scheme, these payments are called employee contributions. This applies to contributions to your employer's pension scheme, or to your own retirement annuity contract or personal pension plan.
Employee loans: Loans made by a company to an employee. These loans might be interest free or at a low interest rate.
Employer: Someone who employs you to do a job under a contract of service.
Employer's pension: A pension you receive from a previous employer.
Employer's retirement benefits scheme: Pension scheme set up by a company for employees. Apart from a normal pension, it might also include the right to continue using a company asset after retirement such as a company car.
Employment income: The earnings you receive from your office (directorships and so on) or employment. It includes salary and commission as well as benefits provided by your employer (company car and so on).
Enterprise allowance: A Government benefit paid to assist unemployed people to start their own business. Payments made by the government to recipients are included in their taxable income. Previously called Business Startup Allowance.
Enterprise investment scheme: The Enterprise Investment Scheme is an Inland Revenue approved scheme that encourages individuals to buy shares in unquoted trading companies. Tax relief is due on the investment. There are many detailed rules applying to this scheme.
Enterprise zone trust: An Inland Revenue approved trust which builds and lets commercial property in certain designated areas (Enterprise Zones). You receive tax relief on your share of the building costs and then you receive a share of rents. This is a very longterm investment.
Entertainment: Hospitality provided, such as dinners, parties, business lunches etc. (Back to top)
Enquiries: Queries which the Inland Revenue may raise and investigations they may make into matters connected with your Tax Return.
Equalisation: This is an adjustment which may be made if you have recently bought units in a unit trust. The first distribution you receive may be split into two parts, a dividend distribution of the income earned by your units since the date of your purchase, and an equalisation payment equal the income earned by the units before them. The equalisation payment is not part of your taxable income, but it should be deducted from the base cost of the units for capital gains tax purposes.
You may also receive an equalisation payment if you have acquired units in an open ended investment company (OEIC).
Estate: Property left by a person who has died. The executors will collect all the assets of the estate and distribute them to the beneficiaries in accordance with the terms of the dead person's will, or intestacy rules if there was no will left.
Exdividend: If you sell a share just after the date you become entitled to a dividend, but before the date the dividend is paid out, the share is sold exdividend. You are still entitled to receive the dividend.
Exgratia: An exgratia payment is one made freely where there is no obligation to make any payment. Often made by employers to leaving employees.
Exact basis motoring costs: The exact basis of calculating your motoring costs involves adding up the total motoring expenses incurred over the tax year (such as fuel, servicing repairs and so on) and apportioning the costs between business and private use on the basis of mileage.
Exempt: Income that is not taxable. For example, prizes from the National Lottery or winnings from gambling.
Exempt assets: Assets that are specified in the tax legislation as being free from capital gains tax such as motor cars.
Exercise: To take up an option to buy something usually a share. (Back to top)
Expense payments received: Payments received by employees from employers to reimburse them for expenses that they have incurred in carrying out their employment. Includes payments for travel, subsistence, business phone calls and so on.
Expenses: Outgoings you incur in the running of your business, employment, property letting and so on or on the purchase or sale of an asset.
Extra statutory concession: Something which the Inland Revenue allows in practice, although it would not strictly be allowed under the terms of the tax legislation. For example luncheon vouchers of up to 15p per day are tax free under an Inland Revenue concession.
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Farmers' averaging: A relief that enables farmers to even out fluctuations in income. Pairs of years are viewed together. Full averaging is allowed if the profits of one year are less than 70% of the profits of the other year, and partial relief if the profits are between 70% and 75%.
Filing date: The date by which you must file your Tax Return. The normal filing date is the 31 January following the tax year, but this is revised to 3 months after the issue of the Tax Return if later. If you wish the Inland Revenue to complete your selfassessment, you should file your Tax Return by the earlier date of the 30 September, or two months after the issue of the Tax Return if later.
Final version: The definitive end product which is produced after an initial drafting stage. You can print a draft version of your Tax Return from the program before asking for a final version.
FIRST option bonds: These Bonds are bought from the Post Office or direct from National Savings. Interest is paid to you annually, net of tax (tax deducted).
First year allowances: Capital allowances that you can claim on items of plant and machinery in the year that you acquire them. For expenditure from 2 July 1998 the rate is 40%. First year allowances are not available to large businesses, nor are they available on cars (except in a car hire business).
Fixed deduction: If you buy and maintain special clothing and tools that you have to use in your employment the expense is tax deductible. Instead of claiming a deduction for the actual amount you spend, you can claim a fixed deduction. The amount of the fixed deduction depends on the nature of your employment and is agreed between the Inland Revenue and your trade union or association.
Fixed profit car scheme: The Inland Revenue's scheme which sets out the maximum rates at which a mileage allowance can be paid tax free to employees. There are reduced reporting requirements for employers who apply to use the Fixed Profit Car Scheme.
Employees may use the Fixed Profit Car Scheme rates to claim a deduction for motoring costs (the simpler basis), rather than calculating the exact cost.
Foreign companies: Companies which are not resident in the UK.
Foreign dividend: A dividend paid by an overseas company, unit trust or other investment fund.
Foreign earnings deduction: A deduction from your earnings that you could make if you worked abroad and were outside the UK for a continuous period of at least 365 days. It has been abolished for earnings paid on or after 17 March 1998 (unless you are a seafarer).
Foreign earnings paid: Income from an employment where the work was done outside the UK.
Foreign earnings remitted: The amount of income that you have brought into the UK out of your earnings from employment which was done outside the UK. This term is used for people who are not UK Domiciled, and certain people who are not ordinarily resident in the UK, who are taxed on the foreign earnings only when the income is brought into the UK.
Foreign income arising: Means that you are taxed on foreign income when it is due to you even if you have not received it in the UK. You are, for example, taxable on interest credited to your foreign bank account even if you do not withdraw the interest from the account. Applies to people who are UK Domiciled, apart from certain people who are not ordinarily resident in the UK.
Foreign income remittance basis: You are taxed on foreign income only when you bring it into the UK, directly or indirectly. Applies to people who are not UK Domiciled and certain people who are not ordinarily resident in the UK.
Foreign income dividend distributions: Some multinational companies include a foreign income dividend element in the dividend they pay. This is because they pay foreign taxes on the foreign profits. Unit Trusts and open ended investment companies (OEICs) pass the foreign income dividends they receive on to unit holders and shareholders as foreign income dividend distributions. The tax credit on these is not repayable.
Foreign income dividends: Some multinational companies include a foreign income dividend element in the dividend they pay. This is because they pay foreign taxes on the foreign profits. The tax credit is not repayable.
Foreign life insurance policies: Life insurance which is with an insurance company which does not have any presence in the UK.
Foreign service: Employment abroad, provided that:
Foreign tax paid: Tax paid in a foreign country on income (or gains arising in that country). You may claim tax credit relief for foreign tax paid.
If you do not claim tax credit relief you may deduct the foreign tax paid from the foreign income (or gains), so that your taxable income (or gains) is the net amount (the foreign income (or gains) less the foreign tax paid).
Forms: There are many types of forms which are issued by the Inland Revenue for completion in certain circumstances. These include Tax Returns, P60's, P45's and so on.
Forms mode: The Forms mode enables you to type information directly into electronic versions of Inland Revenue forms. Unless you are extremely comfortable completing Inland Revenue forms, it is best to use the Step by Step Interview to complete your return.
Free standing additional voluntary contributions: If you are in an employer's pension scheme you can make extra pension contributions, called additional voluntary contributions. These may be made into your employer's scheme, or into a separate pension scheme of your choice. Contributions to your own scheme are called freestanding additional voluntary contributions. Sometimes referred to using the acronym (FSAVC).
Freelance: In business on your own, selling your own services. A freelance writer, artist, plumber and so on.
Friendly society: An organisation set up to accept savings from individuals. The policies offered by the friendly society are generally tax free, but there is a limit on the amount you may invest. You may be able to claim limited tax relief for contributions to certain older policies providing a combination of sickness and death benefits.
Fringe benefits: Benefits provided to you by an employer in addition to your salary.
FSAVC's: Acronym for Free Standing Additional Voluntary Contributions.
FTSE 100 share index: An index run by the London Stock Exchange which monitors the performance of the top 100 UK quoted companies on the London stock exchange.
Furnished holiday lettings: The letting of holiday accommodation which is taxed as if it were a trade. The property must be furnished, available for commercial letting for at least 140 days per year, let commercially as holiday accommodation for at least 70 days per year and not be occupied for a continuous period of more than 31 days by the same person for at least 7 months of the year.
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Gains: Profits that are made on the disposal of investments (such as shares) and other assets. The profits made are normally liable to capital gains tax, but in some cases are liable to income tax.
Gains from UK life insurance policies, life annuities or capital redemption policies: Profits that are made on these investments are called gains. You are subject to income tax on these gains. Gains may arise on the surrender, maturity, sale or transfer of the policy, or on death. Gains may also arise if you make partial surrenders or withdrawals during the life of the policy, or take a loan backed by the policy.
Gambling profits or losses: Profits or losses that are received as a result from gambling. Unless you are a professional gambler, you are not taxed on any profits and nor do you receive tax relief on losses.
Game or quiz show winnings: Winnings or prizes that are received as a result from game shows or quiz's. These winnings are taxfree.
General commissioners: A panel of individuals, usually businessmen and people of highstanding in the local community, who adjudicate on certain disputes between taxpayers and the Inland Revenue.
Gift aid: One off payments of more than £250 made to a registered charity. The charity reclaims the basic rate tax you have deducted and you receive higher rate tax relief if you have sufficient income.
Under the millennium gift aid scheme the £250 limit is reduced to £100 for payments to participating charities for the benefit of third world countries.
Gifts: Something, which is received, or made, voluntarily.
Gilts: Treasury stock and other loan stock issued by the Government. These stocks are known as Giltedged securities (Gilts) because the Government guarantees the repayment of your capital. Interest will be paid to you, normally at a rate fixed when the gilts were issued. Some gilts are index linked. The interest on these, and the amount of the loan, increases with inflation.
Interest is now paid gross (without deduction of tax), although it will continue to be paid net (after deducting tax) on holdings you had at 6 April 1998, unless you ask to receive the interest gross.
Give as you earn: A scheme which gives you tax relief for payments to charity. The payments are deducted from your wages by your employer and paid to a charitable agency. You can then choose which charities you wish to make donations to. For tax year 1999/2000 up to £1,200 may be given under the scheme. From 6 April 2000 there will be no upper limit on donations made in this way. Tax relief is given by deducting the payments from your wages before calculating PAYE (the tax on what you earned). The scheme is also known as the "payroll giving scheme".
Goodwill: The value put on a business's customer base and organisation. It is the difference between the total of the values of the individual business assets and the value of the business as a going concern.
Grant of option: An option is granted to you when you are given the right to purchase shares (or other assets) at a price specified in the option agreement.
Gratuities and tips: Amounts paid to you by customers as a reward for your services. Often received by waiters and waitresses, hairdressers and so on. Tips and gratuities should be included in your taxable income even when not paid by your employer.
Gross: The amount of money (wages for example) you receive before tax is then deducted. Some income may be received gross, without tax having been deducted.
Grossingup: The term given to the process of adding back the tax deducted to the net income to calculate the gross income liable to tax. Formulas for converting net income at the appropriate rates to the gross figure are detailed below:
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Higher rate tax: For 1999/2000, the higher rate of income tax is 40%.
You pay tax at the starting rate (10%) on the first £1,500 of your taxable income (the starting rate band), at the basic rate (23%) on any income between £1,500 and £28,000 (the basic rate band), and tax at the higher rate (40%) on any income in excess of £28,000. However, you do not pay basic rate tax on savings income, such as interest and dividends. To the extent that your interest from banks or building societies falls within the basic rate band it is taxed at the savings rate of 20% instead of the basic rate. To the extent that your dividend income falls within the basic rate band it is taxed at the savings rate of 10%. To the extent that dividend income falls into the higher rate band it is taxed at 32.5%.
Hobby: Income from a hobby is not taxable and related expenses are not allowable.
There are criteria to differentiate between a business and a hobby. If in doubt, contact the Inland Revenue, accountant or Tax Advisor.
Holdover relief: If you give an asset away for no monetary gain and a capital gain arises, in some circumstances you can elect for the gain to be heldover or deferred. The donee (the person you gave the asset to) inherits your original base cost of the asset. When the donee disposes of the asset, the donee's gain will include the gain held over on your gift, and the donee will be liable for any capital gains tax due.
Home: The place where you normally reside.
Home office: If you mainly work from home, you may have set aside a room which you normally use as an office.
Home to work travel: Travel from your home to your place of work. This travel expense is not allowable for tax purposes unless you can show that your home is your business base, or your permanent workplace if you are an employee.
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ICTA: Acronym for the Income and Corporation Taxes Act 1988.
IFA: Acronym for Independent Financial Advisor. You may need to use an IFA to help with your general financial planning along with pension options.
Incapacity benefit: A government benefit paid if you are unable to work due to an accident or illness.
Income: Something you receive from working (past or present), from assets you own such as shares, or a government benefit paid to you.
Income bearing: An income bearing asset is one which gives you an income, such as shares which pay dividends, land which pays rent, and so on.
Income for tax purposes: Income which is liable to tax. Some forms of income are tax free such as winnings from gambling (providing you are not a professional gambler) or the National Lottery.
Income from employment: The earnings you receive from your office (directorships and so on) or employment. It includes salary, commissions as well as benefits provided by your employer (company car and so on).
Income from estates of deceased persons: Income paid to a beneficiary by the executors of the estate of a deceased person. The executors are in charge of administering the assets of the estate, and distributing the income they have received from those assets to the beneficiaries of the estate.
Income limit: For some reliefs and allowances there is a limit to the amount of the relief or allowance that you can claim which is related to the amount of your taxable income. This applies, for example, if you are aged 65 or over. Your age related allowances will be restricted if your total income exceeded £16,800 in 1999/2000.
Income tax: A tax on the income you receive. For 1999/2000, there are five different rates of income tax (10%, 20%, 23%, 32.5% and 40%) based on how much income you earn and from what source.
independent financial advisor: An independent financial advisor is someone who can give you advice about a wide range of financial products. They must be authorised to give advice, and are regulated by the Personal Investment Authority. They must be distinguished from tied financial advisors, who can only give advice on investment products offered by a specific company.
Independent taxation: Since 6 April 1990, husbands and wives have been taxed separately.
Indexation allowance: An allowance to ensure that you are only taxed on capital gains made after adjusting for the rate of inflation. The indexation allowance has been frozen at 5 April 1998 and replaced by taper relief.
Indexed gain/loss: The profit and loss on the sale of an asset after adjusting for indexation. Since 30 November 1993, it is not possible for indexation to create, or enhance, a loss.
Individual savings account: A tax free investment vehicle available from 6 April 1999 which allows you to invest in stocks and shares and life assurance policies, or to hold cash. It replaces personal equity plans (PEPs) and TESSAs.
You may contribute up to £5,000 per annum (£7,000 for 1999/2000). No more than £1,000 (£3,000 for 1999/2000) may be held as a cash deposit, and £1,000 in life assurance products, and the balance may be invested in quoted shares and loan stock. The income and gains will be tax free.
Industrial death benefit pension : A benefit paid by the Department of Social Security to a widow if her husband dies as a result of an accident at work or from a "prescribed industrial disease". This benefit was abolished for deaths occurring on or after 11 April 1988.
Inheritance: Something you receive from a deceased relative or friend. Inheritances are received free of income tax and capital gains tax and should not be entered on your Tax Return.
Inheritance tax: A tax payable on your assets when you die. No inheritance tax is payable if your total assets, including your home, are worth less than £223,000. This figure may change in the March 1999 Budget. If your assets are worth more than £223,000, 40% tax is payable on the excess over £223,000.
Some lifetime gifts may be liable to inheritance tax, although gifts you make to another individual are free of inheritance tax if you do not die within seven years of making the gift.
Inland Revenue: The government department which controls the collection of income tax, capital gains tax, inheritance tax and so on. From 6 April 1999 the Contributions Agency (which dealt with the collection of national insurance contributions) has become an Inland Revenue department, (the national insurance contributions Office).
Insurance payouts: Something you receive following the maturity of an insurance policy or a claim for theft, fire, or loss of profits and so on due to a catastrophe.
Insurance premiums: Something you pay to cover yourself against a negligence claim, loss of profits due to a catastrophe or damage (or destruction) to your assets.
Interest distribution: Payments by a company or unit trust in the form of interest rather than as a dividend distribution. Your tax voucher will specify the nature of the distribution.
Interest on loans to buy your main home: In 1999/2000 you still receive tax relief on the interest you paid on these loans (up to a maximum loan of £30,000). This relief has been abolished from 6 April 2000. In 1999/2000 tax relief was given at the rate of 10%, and was normally given through the MIRAS scheme.Your main home is the place you generally live, not your second home or holiday cottage. (Back to top)
Interest on other qualifying loans: You can receive tax relief on interest paid on certain loans. These include loans for buying shares in a close company, purchasing an interest or introducing capital in a partnership, paying inheritance tax and purchasing machinery or plant.
Interest: Money you pay on a loan or receive if you have cash deposits. Note that personal overdraft interest or credit or charge card interest is not tax deductible.
Intestacy: If a person dies without leaving a will, the assets of the deceased's estate pass under the intestacy rules. These vary according to whether or not there is a surviving spouse, or surviving children, parents, brothers and sisters and so on.
If a person's will does not deal with all of the assets of the estate, there may be a partial intestacy.
Invalid care allowance: This allowance is paid if you spend at least 35 hours per week caring for a disabled person who receives certain state benefits. It will not be paid if you are also working and earning over £50 per week.
Investment income: Income generated from assets such as shares, land and property, cash deposits and so on.
Investment trust: An investment trust is a company which invests in a spread of equities or fixed interest securities. You can buy shares in the investment trust. The shares are publicly quoted, and their price will vary according to the value of the underlying investments owned by the investment trust.
Investments: Assets you buy either to profit from or to own for a long time. These can include shares, land and property, a pension or your home.
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Jobseeker's allowance: A benefit paid by the Department of Social Security (DSS) if you are unemployed, but are available for and actively seeking employment. You will have entered into a "Jobseeker's agreement" with the DSS.
Joint tenancy: If you own land and property with one or more persons, your ownership is normally a joint tenancy. On the death of a joint tenant, their share automatically passes to the other joint tenants. Alternatively you may own the property as tenants in common. In this case you can leave your share of the property to someone else in your Will.
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No terms for K
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Land: Ground which has been built on, is used for a purpose or is let out for such things as farming, forestry and so on.
Lease or rental expenses: Where property or land is let, you can set most expenses for the letting and upkeep of the land against the rental income. Expenses include some legal costs, accountancy fees, repairs and so on.
Leaving payments: Payments made to you when you leave your employment. They are generally taxable if made under the terms of your contract of employment, but there are tax reliefs for payments resulting from an accident at work, from foreign service and for the first £30,000 of compensation payments.
Legal expenses: Some legal costs qualify as allowable expenses for income tax or capital gains tax purposes. You should ask your solicitor or a Tax Advisor for help if you are not sure what legal costs qualify.
Legatees: A legatee is someone who receives assets from the estate of a deceased person, whether under the terms of the will, or under the intestacy rules. You may be a specific legatee, where the assets you are received are specified in the will, or a residuary legatee, where you receive a share of what is left after paying inheritance tax, expenses and specific legacies.
Lettings: Land or property leased to another person.
Let property: Property that you allow someone else to use, usually in return for the payment of rent. You may own the property yourself, or you may lease it from a landlord, and sublet it to your tenant.
LIBOR: Acronym for London Inter Bank Offered Rate. This is the rate charged by banks on loans between themselves.
Life insurance: A life insurance policy will probably only pay out following your death. Some policies have a death and investment content. If the death benefits are written under trust, they are not included in your estate for Inheritance Tax purposes.
Life insurance policies: Policies which will pay a lump sum to a beneficiary or your executors on your death. Some policies also have an investment content which means that when the policy comes to an end, you will receive a payment whether or not you have died.
Literary income: Income received by an author.
Living accommodation: Any accommodation in which you can live. This includes not only houses, flats and so on, but also houseboats, holiday cottages and villas. It does not include hotels or bed and breakfast accommodation.
Living together: A man and woman living together in the same manner as a married couple would.
Loans written off: A loan is written off where it is agreed that the debt will never be collected. If a company makes a loan to you and writes it off, a tax charge may arise. If you make a loan to a company and the company collapses, you might be able to claim a capital gains tax loss.
Loans: A sum of money lent to another party who agrees to repay the capital lent over a period of time and usually to pay interest on the outstanding balance.
Loss: A loss arises when the income or proceeds received are less than the expenses or cost. There are detailed rules on how tax relief can be claimed on losses.
Loss on relevant discounted securities: This aises if you sell a relevant discounted security for less than you bought it for. The loss can only be set against other taxable income in the same tax year.
Lump sum and compensation payments or benefits: Payments made to you when you leave your employment, or when the terms of your employment are significantly altered, and benefits which your former employer makes available to you after leaving. These payments and benefits are generally taxable if made under the terms of your contract of employment, but there is tax relief for payments resulting from an accident at work, foreign service and for the first £30,000 of compensation payments.
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Magazines, books and references: If you are self employed, the cost of these is tax deductible provided they are used wholly and exclusively for business purposes. If you are employed by a third party, it is very difficult to get tax relief as they must be bought "wholly, exclusively and necessarily" in the performance of the employment.
Main residence: The place where you normally live and consider to be your home. You can only have one main residence for capital gains tax purposes.
Maintenance: A payment made to a former spouse or child, following divorce or legal separation. Tax relief may be claimed by the payee while the amount may have to be included in the taxable income for the recipient.
Maintenance and alimony payments: Amounts you pay under a legally binding agreement to a former spouse who is no longer living with you, or to or for your child. You may be able to claim tax relief for these payments.
Maintenance and alimony received: Amounts you receive under a legally binding agreement from a former spouse who is no longer living with you, or from your parent if you are under the age of 21. You may have to pay tax on some or all of the amount you receive.
Market value: The price which you can obtain for an asset if you sold it freely on the open market.
Marriage: A man and woman legally living together as man and wife.
Married couple's allowance: An extra tax allowance you are entitled to if you are married.
Master/servant relationship: Means that you are told what your daily or weekly duties are. Often determines whether you are employed or self employed.
Medical insurance: In return for a premium, you will receive prompt private medical attention.
Mileage allowance: An allowance paid to you by your employer for travelling. It is based on the number of business miles you travel and is paid at a rate fixed by your employer.
Millennium gift aid: One off payments of £100 or more made to certain registered charities that are participating in this scheme. The funds must be used for education projects or for the relief of poverty in third world countries. The charity reclaims the basic rate of tax you have deducted and you receive higher rate tax relief if you have sufficient income.
(When first announced, millennium gift aid status for charities was pledged to run until 31 December 2000. However, later (in November 1999) the Government announced that from 6 April 2000 most charitable donations, even small ones, could be made net of basic rate tax and treated as taxdeductible. It seems therefore that the special status of millennium gift aid charities may not matter so much after 5 April 2000).
MIRAS: Acronym for Mortgage Interest Relief At Source. You receive 10% tax relief on the interest on loans up to £30,000. Payments made to the lender are net of this tax relief.
Mixed business asset: An asset that has been used for both business and non business purposes.
Mobile telephone: Any telephone not connected to a landline. It includes a car phone, whether or not it is fixed to the car, but does not include a cordless phone which is an extension of a landline.
Money payments: Payments that are made in cash or equivalent.
Money's worth: The cash value of something you receive the amount for which you would sell it, not the loss to the person providing it.
Mortgage: A longterm loan, which is secured on property, generally your main home. You receive 10% tax relief on the interest on loans used to purchase your home up to a value of £30,000.
Motor vehicle expenses self employed: When you are self employed, you can claim the business percentage of the total running costs of a vehicle against your business profits. Alternatively, you can keep a note of the business mileage and claim the equivalent of the Inland Revenue fixed profit car scheme rate against the profits. This is subject to stringent tests by the Inland Revenue.
Motoring costs the exact basis: The exact basis of calculating your motoring costs involves adding up the total motoring expenses incurred over the tax year (such as fuel, servicing repairs and so on), and apportioning the costs between business and private use on the basis of mileage.
Motoring costs the simpler basis: The simpler basis of calculating your motoring costs allows you to use mileage rates published by the Inland Revenue, the Fixed Profit Car Scheme rates. The rate varies according to the cylinder capacity of your car and a higher rate is used for the first 4,000 business miles.
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Name at Lloyd's: Someone who pledges assets to Lloyd's in return for sharing the underwriting of profits and losses.
National insurance contributions office (NICO): A department of the Inland Revenue which has from 6 April 1999, taken over responsibility for administering the collection and recording of national insurance contributions from the Contributions Agency of the Department of Social Security.
National insurance number: A unique reference number which is used to identify your national insurance contribution record and entitlement to social security benefits.
National insurance: A scheme which provides pensions and other social security benefits. Some benefits are dependent on contributions you have paid, whilst other benefits are means tested. Employees pay higher contributions and have a greater entitlement to benefits than do the selfemployed. Contributions are also payable by employers.
National savings: A savings organisation backed by HM Treasury which offers a number of different savings products. Information on these is available from your local Post Office as well as from National Savings.
National savings ordinary account: An instant access account offered by national savings which is backed by HM Treasury. You can deposit and withdraw funds from post offices. The first £70 of interest earned is tax free, but the account pays a low rate of interest.
Net: The amount received after the deduction of tax. May also be used to refer to income after the deduction of expenses.
Net relevant earnings: Your taxable earnings from your selfemployment, or from an employment where you are not a member of your employer's pension scheme. You may make contributions to a retirement annuity contract or personal pension plan, up to a percentage of your net relevant earnings. The percentage limits are based on your age, and differ between retirement annuity contracts and personal pension plans.
Nominee: A person who holds assets for another person.
Nonqualifying distributions: A bonus issue by a company of securities or redeemable shares, or the paying on by a company of such a bonus that it has received. Nonqualifying distributions are taxable, but you are treated as if you had paid lower rate tax on the amount of the nonqualifying distribution.
Nonrepayable: Something which cannot be repaid under any circumstances, such as notional tax credits on foreign income dividends and scrip dividends.
Nonresident: Someone who is not resident in the UK.
Nonresident trusts: These are trusts that are controlled by trustees who are not UK residents.
Nontaxpayer: Someone who does not pay tax because their income is too low.
Not domiciled: Broadly, you will not be UK Domiciled if you were born outside the UK and/or you do not consider the UK to be your permanent home.
Not ordinarily resident: If you are not resident in the UK year after year, you are not ordinarily resident.
Not resident: You are not resident in the UK if you spend less than half the year in the UK, or if you spend less than 3 months of each year in the UK on average.
Notice of coding: The notification of your PAYE code that you receive from the Inland Revenue.
Notional tax: Notional tax is tax which is treated as having been paid, but which is not repayable under any circumstance. It applies to UK life insurance policy gains, scrip dividends, foreign income dividends and some other income sources.
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Occupational pension: A pension you receive from a previous employer.
Office holder: Someone who occupies a particular position or office. Includes directors, judges, ministers of religion, members of parliament and so on.
Offset: To set one amount against another, such as a loss against a profit or a repayment against a liability.
Offshore funds: Investments which are made outside the UK.
Openended investment companies (OEICs): These are similar to unit trusts and investment trusts. Because an OEIC is a company, you own shares rather than units and the buying and selling price is the same. Many large unit trust managers are converting most of their unit trusts into OEICs.
Opening written down value: Cost of an asset at the start of the accounting period after deducting capital allowances given in earlier accounting periods. The closing written down value will be the opening written down value, less capital allowances given in the accounting period. This will be the opening written down value for the following accounting period.
Where expenditure on plant and machinery is pooled for capital allowance purposes the closing written down value will be the opening written down value brought forward, plus any additional expenditure incurred, less any disposal proceeds, less any capital allowances given, and plus any balancing charges made.
Option: The right to buy or sell something at a set price within a given time period. Employees for example, may be granted options to purchase shares in the company that employs them.
Ordinarily resident: If you are resident in the UK year after year, you are "ordinarily resident".
Ordinary commuting: Travel between home (or some other place you attend for private reasons) and a permanent workplace.
Other benefits (employment): The more common other benefits which are received in an employment are:
Other income: This is a "catch all" term to ensure that you declare all your taxable income which you have not already entered anywhere else on the Tax Return.
Other income from savings and investments (except dividends): Covers anything from interest on loans you have made to income from Government Stocks (Gilts).
Other pensions: Pensions paid by anyone apart from those paid by the Government.
Other income from land and property: Any property income (other than rents) that you receive from any source, such as wayleaves, payments from sporting rights and so on.
Other qualifying loan interest: You can receive tax relief on interest paid on loans that you take out for certain specific purposes. These include loans for:
Outgoing: Monies you have to pay to someone else for things linked to your income.You may be able to deduct them from your income for tax purposes.
Overlap profit: Profit which has been taxed twice because part of an accounting period falls within the basis period for more than one year.
Overlap relief: Tax relief that is given for overlap profits brought forward. It is given on a change of accounting date if the basis period is longer than 12 months or on the cessation of trade.
Overseas: A country other than England, Northern Ireland, Scotland and Wales.
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P9D: A form listing the payment back to you of expenses and benefits paid to you which must be filed by your employer if you are an employee who earns less than £8,500 a year. Your employer must give you your copy of your P9D for the year ended the 5 April 1999 by the 6 July 1999.
P11D: A form detailing the return of expenses and benefits paid to you which must be filed by your employer if you are a director or employee who earns more than £8,500 a year. Your employer must give you your copy of your P11D for the year ended 5 April 1999 by 6 July 1999.
P45: A form which must be given to you if you leave your employment during the tax year and tax has been deducted from your pay. You should retain part 1A of the form for your records but give parts 2 and 3 to your new employer.
P60: A certificate detailing your income, tax deducted and national insurance for your current employment, as well as any earlier employments in the same tax year. The P60 is given to you by your employer at the end of the tax year.
P86/P85: An Inland Revenue form which you need to complete when you arrive (P86) in or depart (P85) from the UK. The questions help determine your residence status.
partnership: A relationship between two or more people who are in business together.
PAYE: Acronym for Pay As You Earn. PAYE is the system under which your employer deducts income tax from your pay during the year. It is a sophisticated system as it takes into account your personal allowances and the different tax rates and tax bands. The tax deducted must be shown on your payslip each pay day, and on the P45 which is given to you when you leave that employment, or on the P60 form which is given to you at the end of the tax year.
PAYE code: Your PAYE code enables your allowances to be taken into account when calculating the tax to be deducted from your pay under the PAYE scheme. The code number is constructed by adding the allowances available and deducting benefits in kind from which tax cannot be deducted, and other untaxed income. It can also be adjusted to collect amounts of income tax not deducted in earlier years.
PAYE settlement agreement: An arrangement under which your employer pays any income tax due on certain benefits and expenses payments. It is intended to be used for minor and irregular expenses and benefits and for those payments and expenses where it is impractical to account for the tax in any other way. Items included in a PAYE settlement agreement are not included on your P11D or P9D and should not be included on your Tax Return.
Pay as you earn: PAYE is the system under which your employer deducts income tax from your pay during the year. It is a sophisticated system as it takes into account your personal allowances and the different tax rates and tax bands. The tax deducted must be shown on your payslip each pay day, and on the P45 which is given to you when you leave that employment, or on the P60 form which is given to you at the end of the tax year.
Payment on account: A tax payment made during the year "on account" based on your final tax liability (tax owed for the prior tax year). A repayment or further liability arises when you complete your Tax Return and finalise the year's tax due.
Payment to a trade union or friendly society for death benefits: The part of your trade union subscription that entitles you to pension, life insurance or funeral benefits, or the part of the premiums you pay to a Friendly Society for a combination of sickness and death benefits, that are tax deductible. The tax relief is one half of your payment which went to provide the benefit.
Payroll giving: A scheme which gives you tax relief for payments you make to a registered charity. The payments are deducted from your pay by your employer and paid to a charitable agency. You can then choose which charities you wish to make donations to. For the tax year 1999/2000 up to £1,200 may be given under the scheme and tax relief is given by deducting the payments from your pay before calculating PAYE (the tax on what you earned). For 2000/2001 there is no upper limit on payroll giving.
The scheme is also known as Give As You Earn (GAYE).
Pension carry forward relief: If you are not in a company pension scheme and you have not paid the maximum contributions to your retirement annuity contract or personal pension plan, the unused tax relief can be carried forward for up to six years.
Pension contributions: Payments you make out of earnings or profits to a pension scheme. This may be your employer's pension scheme, or your own retirement annuity contract or personal pension plan. In return you will receive a pension once you have retired. Contributions are tax deductible.
Pension income: Regular payments you receive from a pension fund.
Pension scheme: A scheme which you pay pension contributions to. The company running the scheme then invests the money and pays you a pension when you retire. An approved pension scheme has various tax exemptions.
Pension: A pension is a regular payment to you from a pension scheme once you have retired or have reached an age when you are entitled to draw that pension.
Pensions carry back: If you are not in a company pension scheme, you can elect for your pension contributions to your retirement annuity contract or personal pension plan to be treated as paid in the previous tax year. Your tax relief will be calculated by reference to your taxable income in that year.
PEP: Acronym for "Personal Equity Plan", a tax free investment plan. Income and capital gains are tax free. Since 6 April 1999, the PEP has been replaced by Individual Savings Accounts.
Perks: Another name for the benefits given to you by your employer.
Permanent workplace: A workplace which you attend regularly to carry out your employment duties. Not a temporary workplace. A permanent workplace includes a base which you attend daily to receive a list of your duties. You may not have a permanent workplace or you may have more than one.
Personal allowance: Everyone is entitled to receive an amount of income before being liable to tax. For 1999/2000, the personal allowance is £4,335. For 2000/2001 is it £4,385.
Personal equity plan: A personal equity plan (PEP) is a tax free investment plan. Income and capital gains from it are tax free. Since 6 April 1999, the PEP has been replaced by Individual Savings Accounts.
Personal pension plans: If you are employed but are not a member of your employer's pension scheme, or are self employed or in partnership, you can pay into a Personal Pension Plan. You can choose your own pension provider and how the funds are invested. Your contributions to your personal pension plan are subject to set limits based on your age and your net relevant earning. Payments to a personal pension plan qualify for tax relief.
Plant and machinery: The apparatus or equipment which you use for your trade. This does not include the premises in which you trade, such as your factory or shop, or the goods which you process or sell, such as raw materials and stock. It does include machinery used in your factory, display counters in a shop, cars, lorries and vans used for business purposes by yourself and your employees, computers and other office equipment, and so on.
The cost of plant and machinery is not tax deductible, but you can claim capital allowances instead.
Pool of assets: You may add together amounts you spend on most items of plant and machinery, deduct the proceeds of items you have sold, and calculate your capital allowances on the total expenditure. The term "pool of assets" is used to cover all plant and machinery where the expenditure has been aggregated.
A separate pool must be maintained for cars costing £12,000 or less. Cars costing more than £12,000 and assets where there has been private use cannot be pooled.
Postacquisition charge: A postacquisition charge will arise if you have obtained shares from your employment and those shares increase in value because a restriction has been lifted. A charge may also arise if you hold shares in dependent subsidiaries and you have either owned them for seven years or you have now sold them. The increase in value of your shares will be charged to income tax.
Postacquisition event: An event that gives rise to a post acquisitioncharge. Includes the lifting of restrictions on employee shares or the expiry of a 7 year period where you hold shares in a dependent subsidiary.
Postcessation income: Income you continue to receive from a business after it has stopped trading.
Postcessation expenditure: Expenses you continue to pay relating to a business you used to have.
Postemployment deductions: Expenses you continue to incur relating to an employment you used to have and which are tax deductible.
Potentially exempt transfer: If you make a gift during your lifetime, it could be liable to inheritance tax. Some gifts are exempt from inheritance tax, such as gifts to your spouse, and the first £3,000 of other gifts each tax year. Other gifts you make to individuals will be exempt, provided you do not die within 7 years of the gift. Such gifts are potentially exempt transfers, you will not know until 7 years have passed whether they are exempt or not, although you treat them as exempt in the meantime. Inheritance tax may become payable if you do not survive for the full 7 years.
PPP: Acronym for Personal Pension Plan.
Preceding year basis: Before the introduction of selfassessment, some income was taxed on this basis. It is no longer relevant.
Preference shares: Shares in a company which have preferential rights over other shares. For example the nominal value of preference shares is repaid to preference shareholders before payments are made to ordinary shareholders if the company is wound up. Also, dividends on preference shares will be paid in priority to dividends on ordinary shares.
Premium bonds: A national savings scheme backed by HM Treasury similar to a lottery. You buy bonds which participate in regular draws until you cash your bonds. Any winnings are tax free and should not be entered on your Tax Return.
Prepayments: Something you have paid in advance of the liability arising. For instance, you may pay telephone rentals quarterly in advance.
Private medical insurance: Insurance cover to meet the costs of private medical treatment. Cover may be restricted in the amount of benefits it will pay and the circumstances in which it will pay them. Private medical insurance is commonly arranged by employers for employees and their families.
Proceeds: The amount you receive from selling something. If you have given an asset away, you are treated as if you had received proceeds equal to the market value of the asset, even if you have received nothing.
If an asset is destroyed, or becomes worthless, and you do not receive any insurance moneys, the proceeds will be taken as nil.
Professional fees: Fees paid for work done by a professional such as an accountant, solicitor, architect and so on.
Profit: The term used to describe the amount of income received after deducting all the expenses paid out in earning that income. May also be used to describe the amount you receive on the sale of an asset after deducting the cost of the asset and any expenses that you incurred in buying or selling that asset.
Profit related pay: Income paid to you under a scheme arranged by your employer and approved by the Inland Revenue, where the amount of pay you receive is directly related to your employer's profitability. Profit related pay is tax free up to set limits and income tax relief is given by deducting the tax free amount from your pay before calculating the tax to be deducted under PAYE. Tax relief for profit related pay is being phased out.
Profitsharing schemes: Schemes under which shares are allocated to employees. If the scheme is approved by the Inland Revenue, the allocation is tax free provided the shares are retained by the trustees for three years before being transferred to you.
Profits from business: The term used to describe the amount of income received after deducting all the expenses related to the business venture where the income has come from.
Promotion: Event or campaign which you run to advertise your business, or the provision of free samples to potential new customers. The cost of promotions is normally tax deductible, but there may be restrictions for certain free gifts.
Property: Can be anything from a building to an antique, stamp collection and so on.
Protective clothing: Something that is worn over your everyday clothing (personal or working) so that it does not get soiled, or damaged in some way. The cost of providing it is tax deductible.
Provisional: A figure in your Tax Return which is estimated because the final figure is not yet available. If your Tax Return contains a provisional figure, you must tell the Inland Revenue what the final amount is as soon as it is known.
PSA: Acronym for PAYE settlement agreement.
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Qualifying corporate bonds: These are issued by companies when they wish to raise capital. They are loans to the company which are repayable at or between set dates. Any profit on their sale is generally tax free.
Qualifying distributions: A company makes a qualifying distribution to its shareholders by paying a dividend or interest payment at more than the commercial rate. Tax is deducted from the payment.
Qualifying loans: A loan on which the interest you pay qualifies for tax relief. Only a limited number of loans qualify for tax relief, including loans for buying shares in, or lending money to, a close company, purchasing an interest in, or lending money to, a partnership, and purchasing machinery or plant for use in your employment or partnership.
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Rateable value: Before council tax was introduced (and before poll tax which preceded council tax), local taxes were called rates. Business premises are still liable to business rates. The rate charge was based on a value agreed for each property, the rateable value. These values were updated periodically. Water and sewerage charges may still be based on rateable values.
New properties will not have a rateable value. It may be necessary to negotiate an equivalent value with the Inland Revenue.
Rebate: An amount you get back from the Inland Revenue when you have paid too much tax. Applies to self employed and those who are PAYE. A tax rebate is a tax refund due to you.
Redeemable preference shares: Like preference shares, but these can be cashed (redeemed) by the company at set dates.
Redeemable shares: Shares which are capable of being redeemed or repaid, such as redeemable preference shares.
Redundancy payments: Payments made to employees who leave after being made redundant (compulsory or voluntarily). Depending on the length of the employment for the person made redundant, there may be a statutory minimum payment.
Redundancy: Leaving your employment because your employer no longer has work available for you to do. Redundancy can be voluntary where employees are offered the choice of leaving, or compulsory, where employees are dismissed.
References, books and magazines: If you are self employed, the cost of these is tax deductible provided they are used wholly and exclusively for business purposes. If you are employed by a third party, it is very difficult to get tax relief as they must be bought "wholly, exclusively and necessarily" in the performance of the employment.
Registered profit related pay scheme: A scheme arranged by your employer and approved by the Inland Revenue, where the amount of pay you receive under the scheme is directly related to your employer's profitability. Profit related pay is tax free up to set limits and income tax relief is given by deducting the tax free amount from your pay before calculating the tax to be deducted under PAYE. Tax relief for profit related pay is being phased out.
Reinvestment relief: A capital gains tax relief which enables a gain made on the disposal of an asset to be held over if you acquire shares in an unquoted trading company. The held over gain is deducted from the capital gains tax base cost of the shares you acquire. The relief has been replaced by enterprise investment scheme deferral relief from 6 April 1998. There were a number of stringent tests that had to be complied with.
Release: If you have options to purchase shares in a company but you release your options, you will not be able to exercise your option to buy the shares. Any payment you receive for the release is taxable.
Relevant discounted securities: Securities which pay little or no interest but are either issued at a discount or are redeemable at a premium. The discount must be at least 15%, or, if less½% for each year of the bond's life. Any gain on sale or redemption is liable to income tax.
Relief: Something which reduces your taxable income (which is the aggregate of all your incomes, less deductions and reliefs after your personal allowances.)
A relief may also reduce your tax liability although your taxable income is not reduced. For example farmer's averaging may reduce your tax liability if you transfer income from one year to another, and your marginal tax rate is lower in that other year.
Relocation packages: A package of benefits and expenses paid to an employee who is required by his employer to work in a different area or who moves on taking up a new employment. Up to £8,000 may be tax free.
Remittance basis: You are taxed on foreign income only when you bring it into the UK. Term applies to people who are not UK domiciled and certain people who are not ordinarily resident in the UK.
Rent a room: Scheme under which you can receive an income of up to £4,250 from letting out rooms in your own home tax free. The limit is halved if someone else also lets out rooms. If your income exceeds £4,250 (or £2,125) you can claim expenses of up to the exempt amount rather than keeping detailed records.
Rent: Amount paid for occupying land and/or property owned by someone else.
Rental or lease expenses: Expenses incurred in letting out land or property. They may be deducted from the rental income.
Repairs and maintenance: Work carried out to preserve the condition of land and property, plant and machinery, fixtures and fittings and so on. These are allowable tax deductions provided there is no element of improvement in the repair. If there is, the expenditure can be split between repairs and maintenance (allowable) and improvements (disallowable).
Repayment: The paying back of an amount received from someone. The amount may have been received by way of a loan. For example, companies will make repayments of loan stock. Alternatively the amount may have been overpaid. For example a repayment of tax will be made to you if you have paid too much tax, or if too much tax has been deducted at source (such as under PAYE).
Replacement tools: Tools which you buy to replace other tools used in your business. The cost of small tools will normally be an allowable expense. The cost of other tools will normally be disallowed but you may be able to claim capital allowances for these instead.
Resident: You are resident in the UK if you spend at least half the tax year in the UK, or if you spend at least three months per tax year in the UK on average. You may be resident in the UK if you spend less time in the UK, but you will not be resident if you have not been in the UK at all during the tax year. (Back to top)
Residuary beneficiaries: People who are entitled to a share in the net estate of a deceased person, after the payment of inheritance tax, debts and expense and any specific legacies. They may have an interest in income alone, or in income and capital, or their interest may be dependent on the executors deciding to make a payment to them.
Retail price index (RPI): Published monthly based on a selection of goods and services which measures increases and decreases in prices. It is used to calculate the indexation allowance for capital gains, although the allowance has been frozen on 5 April 1998. Also used to increase personal allowances and tax bands, unless the Government overrules the increase.
Retirement annuity: An annuity paid to you from funds you have paid into a retirement annuity contract during your working life. Although there are minimum ages (based on your occupation) below which you cannot draw a retirement annuity, you need not stop work before you draw the annuity.
Retirement annuity contracts: These provide a pension when you retire. No new contracts have been sold since 1 July 1988. You may still contribute to pre 1988 retirement annuity contract if you are not in an employer's pension scheme, or you are self employed or in partnership. You can choose how the funds are invested. Subject to set limits based on your age and your net relevant earning, payments qualify for tax relief.
Retirement relief: A capital gains tax relief given to you when you sell your business or shares in your family company, provided you have worked full time for the business or company. You must be aged 50 or over at the date of sale, or be retiring through ill health. The relief is scaled down if you have owned the business or shares for less than 10 years or worked for less than 10 years. The relief is being phased out and will be abolished on 5 April 2003.
Retirement: You are retired if you have stopped working through choice. Although most people generally retire in their 50s or 60s, you can retire at any age.
Retraining: Training intended to teach you new skills to enable you to carry out a different type of employment. Retraining provided by an employer who makes you redundant is not a taxable benefit.
Rights issue: An issue to shareholders of extra shares in a company in relationship to the number of shares they already own. You generally have to pay for the extra shares, usually at a discounted value.
RPI: Acronym for Retail Price Index.
Rollover relief: A capital gains tax relief given to you when you sell assets used in your business and purchase new assets. It enables you to defer paying capital gains tax on the proceeds that you have reinvested until the replacement assets are sold. Only applies to certain assets including land and buildings, fixed plant and fixed machinery, and goodwill.
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Salary and wages: Regular amounts of income paid to you by your employer under your contract of service, often weekly, 4weekly or calendar monthly.
Savings: Generally refers to deposits made with a bank or building society, also includes investments in shares, unit trusts and so on. Does not include land and property held as an investment.
Savings institutions: Organisations which you can use to look after your savings. Includes banks, building societies and so on as well as friendly societies and similar organisations.
Savings rate tax: The rate of tax on "savings income" for 1999/2000 is 20%. This is also the rate applicable to capital gains taxable at the basic rate (determined by treating the taxable gain as if it were additional taxable income above the top part of actual income). "Savings income" for these purposes is all income from interest payments such as bank deposits, building societies, debenture interest, other loan interest, UK gilts interest, other fixedinterest securities including those of civic authorities or corporations, overseas interest of any kind including interest on foreign government bonds and Eurobonds.
UK dividends are not savings income for this purpose, as they are subject to a special 10% rate of tax in 1999/2000.
Income from letting property (in the UK or overseas) is not savings income for this purpose and is therefore taxable at the normal basic rate of 23% for 1999/2000 (22% for 2000/01).
Some savings income (such as most UK bank deposit interest) is paid net of the 20% tax due, which is paid direct to the Inland Revenue by the deposittaker. Other savings income is paid gross (such as interest on UK gilts after 6 April 1998, unless the taxpayer has elected for net payment).
Taxpayers whose savings income is within the first £1,500 of taxable income and has suffered tax by deduction at 20% can obtain a repayment as the final liability on savings income within the starting rate band is only 10%. Capital gains falling within the starting rate band are however taxable at 20% in 1999/2000. (The Chancellor has indicated that in 2000/01 the starting tax rate will be permitted to apply to capital gains for anyone whose income is at the appropriate level.)
Save as you earn: Now only available in conjunction with approved savings related share option schemes. Enables you to set aside a regular sum from your salary for a three year term. A tax free bonus is then paid to you at the end of the 3 year term. You can use your contributions and bonus to exercise your share options.
SAYE: Acronym for Save As You Earn.
SC60: A certificate of deduction of tax used in the construction industry if a contractor has deducted tax from payments to subcontractors. If you are a subcontractor, contractors must deduct tax from payments they make to you for your labour (but not from payments for materials) unless you hold a subcontractor's exemption certificate.
Scale benefit charge: If you are provided with a car by your employer and you are also provided with fuel which you can use for private motoring, you are taxed on the fuel benefit according to a scale charge set for each tax year.
A scale benefit charge also arises if you are provided with a mobile telephone which you can use for private calls.
Schedular system of taxation: The tax system divides income into different categories known as schedules. These are based on the underlying source of income. Schedules may be further subdivided into cases. Each schedule has its own rules for calculating its taxable income. Employment income, for example, is taxed under Schedule E, whilst income from a trade, whether carried on alone or in partnership, is taxed under Schedule D Case I. (Back to top)
Schedule: See Schedular System of Taxation.
Scrip dividends: A dividend which you elect to receive in the form of shares instead of cash.
Scrip issue:A free issue of shares to existing shareholders in proportion to their existing shares. Commonly called a bonus issue.
Self-assessment: The system under which you are required to complete a Tax Return and calculate your tax liability for the year. Provided you submit your Tax Return by 30 September, you can ask the Inland Revenue to prepare the tax calculation for you. Selfassessment is enforced by a system of automatic penalties for failing to file Tax Returns as well as the addition of interest on any unpaid tax.
Self-employed: You are selfemployed if you are in business on your own account.
Self-employed contributions: Contributions made by the selfemployed. Normally refers to contributions you make to a retirement annuity contract or personal pension plan, but may be used to refer to class 2 or class 4 national insurance contributions.
Selling costs: The costs of selling a capital asset, such as land and property, shares and so on. Includes charges made by auctioneers, stockbrokers, estate agents, solicitors and so on.
Seminar and conference fees: Fees you pay for attending seminars and conferences. If you are selfemployed and the seminar or conference is related to your business, the fees are tax deductible. If you are an employee and your employer sends you to a conference or seminar this is not a taxable benefit. (Back to top)
Separated: You are separated if, although still married, you are no longer living together with your spouse.
SERPS: Acronym for State Earnings Related Pension Scheme.
Settlement: A trust, or any disposition, arrangement or transfer of assets made with gratuitous intent. This is a wide ranging term and covers anything you do which has an element of gift.
Settlor: A person who transfers assets into a trust, or who makes a settlement.
Share disposals: The selling or giving away of shares owned by you to another person.
Share dividends: A dividend which you have elected to receive in shares instead of cash.
Share option schemes: Schemes under which you are granted options enabling you to buy shares at a set price and at a set time or within a set period. The schemes may be approved by the Inland Revenue, in which case they will have certain tax reliefs or they can be unapproved by the Inland Revenue.
Share options: Rights given to you which entitle you to acquire shares at a set price and at a set time or within a set period.
Share related benefits: Benefits which you get from shares you hold in the company you are employed by. An example is vouchers.
Share schemes: Schemes where you can obtain shares in the company you are employed by, normally on preferential terms. Certain schemes, if approved by the Inland Revenue, enjoy certain tax advantages for you the employee.
Shares: The ownership of a company is divided between its members who will each own a number of shares in that company. There can be different types of members (shareholders) with different rights represented by different classes of shares.
Shares acquired: Shares acquired by reason of your employment may be taxable. The amount taxable is based on the increase in the value of your shares in the period after you acquired them, where the shares had either restrictions on them, or they were in a subsidiary company. Special benefits you receive by owning the shares may also be taxable.
Shares as benefits: If you do not pay the full price for shares you receive from your employment you are normally taxed on the undervalue (the difference between the value of the shares and the amount you pay). If you have not been taxed, then you are treated as if you had been made an interest free loan of this amount. You will be taxed on the interest benefit.
Shares received from your employment: Shares which you received because you were an employee. If you do not pay the full price for the shares you receive, you will be taxable on the undervalue (the difference between the value of the shares and the amount you pay). You will also be taxable if you received the shares subject to restrictions, the tax charge applying to the increase in value of the shares when the restrictions are lifted.
Simpler basis: The simpler basis of calculating your motoring costs allows you to use mileage rates published by the Inland Revenue called the Fixed Profit Car Scheme rates. The rate varies according to the cylinder capacity of your car and a higher rate is used for the first 4,000 business miles.
single parent's allowance: This is an additional allowance that you can claim if you are single, separated, divorced or widowed and have a child living with you. The child must be under 16 or in full time education or training. You can only claim one allowance and the amount you claim may be restricted if you marry or separate during the tax year. Exceptionally, you may be able to claim the allowance if your spouse is unable to care for him/herself because of illness or a disability.
Social security benefit: A benefit received from the Department of Social Security (DSS). There are many types of benefits that are available. Benefits may be based on national insurance contributions that you have paid, or on your needs if you are elderly, disabled or on a low income. If you think you may beentitled to any, ask the Benefits Agency of the DSS.
Social security: The Department of Social Security (DSS) oversees the Benefits Agency (which deals with the payment of state benefits), and until 6 April 1999, was responsible for overseeing the Contributions Agency that dealt with the collection and recording of national insurance contributions. (Back to top)
Social security payments: Payments made to you by the Department of Social Security. These payments may be based on national insurance contributions that you have paid or on your needs if you are elderly, disabled or on a low income.
Social security pension: Pensions paid to you by the Department of Social Security. Your entitlement to such a pension depends on your national insurance contributions and whether you have contributed towards an earnings related pension.
See also State Earnings Related Pension.
Special commissioners: The Special Commissioners sit as a tribunal to hear disputes between the Inland Revenue and taxpayers. They are professionally qualified and normally hear disputes of a technical nature. Other disputes are heard by the General Commissioners.
Specific legacies: A legacy (a gift left in a will) such as a sum of cash or property. Does not include gifts of residue (the remaining assets of the estate after paying inheritance tax, administration expenses and specific legacies).
Splityear treatment: You are either resident or not resident in the UK for a whole tax year. However "splityear" treatment is a concessionary treatment that may be available if you come to, or leave, the UK part of the way through the tax year.
Split View: Split View divides the working areain half horizontally. This view enables you to see the Inland Revenue Form you are currently working on in the lower frame as you answer interview questions in the top frame. An adjustable bar, used to resize the frames, separates the top and bottom frame.
Starting rate tax: For 1999/2000 the starting rate of income tax is 10%.
You pay tax at the starting rate (10%) on the first £1,500 of your taxable income (the starting rate band), at the basic rate (23%) on any income between £1,500 and £28,000 (the basic rate band), and tax at the higher rate (40%) on any income in excess of £28,000. However, you do not pay basic rate tax on savings income, such as interest and dividends. To the extent that your interest from banks or building societies falls within the basic rate band it is taxed at the savings rate of 20% instead of the basic rate. To the extent that your dividend income falls within the basic rate band it is taxed at the savings rate of 10%. To the extent that dividend income falls into the higher rate band it is taxed at 32.5%.
State Earnings Related Pension: You will receive an increased state pension if you are a contractedin employee earning above the national insurance lower earnings limit.
State pensions: Pensions paid to you by the Department of Social Security. Your entitlement depends on national insurance contributions you have made and whether you have contributed towards an earnings related pension.
State retirement pension: A pension women are entitled to from age 60 and men from age 65. It is paid by the Department of Social Security.
Statement of account: Statement that you will receive from the Inland Revenue showing the payments of tax you are to pay as well as any payments you have already made to the Inland Revenue.
Statutory maternity pay: Paid to you if you are on maternity leave because you are pregnant or have recently had a baby. Normally paid by your employer, but occasionally paid by the Department of Social Security.
Statutory sick pay: Paid to you if you are unable to work because of sickness. Normally paid by your employer but occasionally paid by the Department of Social Security.
Stock: Raw materials used in your business for and goods bought for resale, which you have on hand.
Stock dividends: A dividend which you have elected to receive in shares instead of cash.
Stock or scrip dividends: A dividend which you have elected to receive in shares instead of cash.
Stock raw: Unprocessed materials bought in by a business for processing (manufacturing).
Step by Step Interview: Completing your Tax Return stepbystep by answering several sets of interview questions. TaxSaver then uses your answers to these questions to complete the appropriate Inland Revenue Forms.
Subcontractors: People who carry out work for other people. The term is usually used to refer to workers in the building industry. Tax is deducted at source from payments for labour made to subcontractors in the construction industry unless the subcontractor has an exemption certificate.
Subscriptions: Amounts you pay regularly to belong to a trade union or association, professional body or club.
Surplus allowance: The unused part of your married couple's allowance and/or blind person's allowance that arises because of insufficient income. It can be transferred to your spouse.
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Taper relief: Relief given for capital gains purposes by scaling down the gain on the disposal of an asset by reference to the period of ownership of that asset after 5 April 1998.
Tax Advisor: Someone who can handle your personal taxation affairs and deal with the Inland Revenue on your behalf.
Tax assessment: Before self assessment was introduced, the Inland Revenue calculated your tax and then issued a tax assessment showing any tax you owed. These types of assessments are now not normally issued. An assessment may be issued if you have omitted income from your Tax Return if the deadline for raising enquiries by the Inland Revenue has passed.
Tax code: Your tax code (also called you PAYE code) enables your allowances to be taken into account when calculating the tax to be deducted from your pay under the PAYE (Pay As You Earn) scheme. The code number is constructed by adding the allowances available and deducting benefits in kind from which tax cannot be deducted, and other untaxed income. It can also be adjusted to collect amounts of income tax not deducted in earlier years.
Tax credit: Although tax is not actually deducted from certain types of income, you may be given a tax credit as if tax had actually been deducted. For example, you are given a lower rate tax credit on dividends you receive. The dividend you receive being treated as the net amount (after deduction of the tax credit).
Tax credit relief: Relief you may claim for foreign tax paid. The relief is given by deducting the foreign tax paid from the UK tax payable on the foreign income.
Tax deducted: Tax which has been deducted from any income before the income is paid to you. This is known as receiving the "net income ". The tax deducted is paid to the Inland Revenue. For example, tax is deducted from your salary under PAYE and from interest paid to you by banks and building societies.
Tax deduction certificate: Shows the tax deducted from the income you have received, such as tax deducted from interest you received on cash deposits during the tax year or trust income you received. You may have to complete a tax deduction certificate for charitable covenants that you pay, or payments you make under the Gift Aid scheme.
Tax freeincome: Income which is not liable to income tax.
Tax month: The period running from the 6th day of the month to the 5th day of the following month.
Tax office: The Inland Revenue has many tax offices situated around the UK. Your records will be held by one tax office which may not be geographically close to you. You can visit any tax enquiry centre for advice or to pay your tax.
Tax preparation expenses: The expenses incurred in preparing tax computations and returns such as those by a Tax Advisor or accountant. The cost of preparing tax computations for your business or for your property letting, may be deducted from your income as allowable expenses.
Tax rebate: A refund of tax due to you.
Tax relief: Something which reduces your taxable income (which is the aggregate of all your incomes, less deductions and reliefs after your personal allowances). A relief may also reduce your tax liability although your taxable income is not reduced. For example farmer's averaging may reduce your tax liability if you transfer income from one year to another, and your marginal tax rate is lower in that other year.
Tax Return : The return which the Inland Revenue may require you to send to them. This return would include details of all of your income and gains for a tax year as well as any claims for tax reliefs and allowances.
Taxable: Income and gains are taxable if they are liable to income tax or capital gains tax under the tax statutes.
Taxable benefit: A benefit which is included as part of your taxable income, and is liable to income tax.
Taxable income: Income which you are taxed on by the Inland Revenue. The term is often used to refer to your total taxable income, which is the aggregate of all your income less deductions and reliefs, and then minus your personal allowances.
Taxfree: Income and gains are tax free if they are exempt from income tax and capital gains tax. Examples are income from Personal Equity Plans, interest from TESSAs, interest on National Savings certificates, lottery prizes and so on. Taxfree gains include gains on your home (subject to certain restrictions), cars, shares held in personal equity plans and so on.
Taxfree slice: Expression often used to refer to a portion of income or gains which is covered by an exemption whilst the balance of the income is taxable.
Taxpayer's charter: Document issued by the Inland Revenue in which they set out your rights and obligations as a taxpayer and their rights and obligations to you.
Tax year: The year running from 6 April one year to 5 April the following year. The tax year 1999/2000 is the year ending on 5 April 2000.
Temporary workplace: A workplace which you attend to perform a short term task or other temporary purpose. A workplace is not temporary if you expect to have to attend there for a period in excess of 24 months and to carry out a reasonable proportion of your employment duties there.
TESSA: Acronym for "Tax Exempt Special Savings Account". You may pay up to £9,000 into a TESSA account over a 5 year period. Provided the account is maintained for 5 years and that you withdraw no more than the interest on the account, subject to a deduction equivalent to lower rate tax, the interest is tax free. No new TESSAs may be opened after 5 April 1999, but you may continue to contribute to an old TESSA after that date. Replaced by Individual Savings Accounts. (Back to top)
Tools of trade: Equipment which traders use to carry out their trade.
Topslicing relief: A tax relief given where, for instance, you receive a payment on a life insurance policy which has been in force for several years. The relief is given by charging tax on the whole gain at the rate of tax that would have applied had only one year's worth of the gain been taxed.
Total income: The sum of your income from all sources, earned and unearned, less any reliefs and deductions which you are entitled to claim, but before deducting personal allowances (these are deducted later).
Trade creditors: Money you owe other businesses for goods or services you have received, but which remain unpaid at your accounting date.
Trade debtors: Money you are owed for goods you have sold or work you have done that is included in turnover, but remains unpaid at your accounting date.
Trade union: Organised association of workmen formed for their protection and promotion of common interests.
Trade: Alternative name for business. Any activity commercially run with a view to making a profit will normally be treated as a trade.
Training: Instruction given to you to develop skills that will help you in your employment, present or future.
Training courses: Courses on which you receive instruction either to improve your work skills or to give you professional or vocational qualifications.
Transferring or using unused allowances: If you or your spouse are on a low income, you may have surplus married couple's allowance or blind person's allowance. These unused allowances may be transferred by one spouse to the other to reduce the tax liability of the other spouse.
Transitional allowance: An allowance which was first given to married women in 1990/91 if their husbands were on low income. It was given to compensate for the fall in allowances that would otherwise have resulted on the introduction of independent taxation. It may still be claimed provided the woman has been entitled to it in every year since 1990/91 because of her husband's low income.
Travel and subsistence: Payments made to you for the cost of travelling whilst on business and for the cost of meals, refreshments and accommodation on business trips.
Trust distributions: Payments made to you from a trust. Normally payments are made out of income, and so taxable, but you may also receive payments of capital (which are not taxable).
Trust: An arrangement where trustees (those responsible for the trust) hold assets for the benefit of particular people (the beneficiaries). The trust deed will set out how the trustees must deal with the income and capital of the trust.
Turnover: Money earned by your business before deducting any business expenses. it includes receipts in cask or in kind for goods sold or work done, commission, fees receivable, tips, insurance proceeds for loss of stock and profits, and so on. It does not include Business StartUp Allowance (or Enterprise Allowance). Also, do not include amounts received from the sale of capital items, that is assets which are of lasting use to the business, such as business premises, plant, machinery and vehicles. Turnover should be included in your accounts when it is earned, even if you do not receive the money until later.
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UK life insurance policies: Life insurance policies which are issued by insurance companies based in the UK.
UK savings and investments: Amounts which you have set aside from your income over the years and invested within the UK. Generally refers to deposits made with a bank or building society, and to investments in shares, unit trusts and so on. Does not include land and property held as an investment.
Unapproved share option schemes: Schemes where you may be granted options to buy shares, but which have not been approved by the Inland Revenue. Approved schemes are approved savings related share option schemes, approved profit sharing schemes and approved discretionary share option schemes.
Unapproved share options: Options that enable you to buy shares at a set price, at a set time or within a set period, but which have not been granted under schemes approved by the Inland Revenue. Approved schemes are approved savings related share option schemes, approved profit sharing schemes and approved discretionary share option schemes.
Unearned income: Unearned income is income which you have not earned by working. It includes dividends from shares you own, interest on savings and most income from land and property. Income from furnished holiday lettings is, however, treated as earned income.
Unemployed: You are unemployed if you are not working, either as an employee or as a person who is selfemployed.
Unindexed gain/loss: The capital gain or loss on the sale of an asset before deducting the indexation allowance.
Unit trust: A unit trust is a trust that invests its funds in a spread of equities or fixed interest securities. A professional manger runs the portfolio. You buy units in the unit trust, the amount you pay being added into the unit trust's funds. The price you pay for the units is based on the value of the unit trust's investments. You can sell your units back to the unit trust at any time. There is a difference between the buying and selling price, known as the "bid/offer spread". (Back to top)
Unit trust income from UK unit trusts: Income paid to you by unit trusts in which you hold units.
Unlisted: Unlisted shares are shares that are not listed on a stock exchange.
Unpaid tax: Tax which has not been paid to the Inland Revenue although it is due for payment.
Unquoted trading company: A company which trades and is not quoted on a recognised stock exchange. Companies which hold assets for long term gain are not trading companies (they are investments companies). Most private companies are unquoted trading companies.
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Value added tax (VAT): A tax which must be charged by VAT registered businesses on goods and services which they supply. VAT is administered by HM Customs and Excise, not the Inland Revenue.
Registered businesses must pay to HM Customs and Excise any VAT that they charge on their sales (outputs), but can normally deduct VAT they have paid on goods purchased for the business (inputs).
VCT: Acronym for Venture Capital Trust.
Venture capital trust: A Venture Capital Trust (VCT) is a quoted company which invests in unquoted trading companies. You can buy shares in VCT rather than in the underlying companies, thereby spreading your risk. To encourage investment of this type, various tax reliefs are given by the Inland Revenue if you invest in an approved VCT.
Vocational training: Training you undertake to obtain National Vocational Qualifications or Scottish Vocational Qualifications, under certain full time courses lasting for at least four weeks.
Vouchers: Entitles you to cash, and/or to goods and services. Often provided to you free by your employer, in which case they are taxable.
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Wear and tear: An allowance that is tax deductible for the cost of furniture and fittings provided in dwelling houses which are let out furnished.
Widow: A woman who was married but whose husband has died.
Widow's bereavement allowance: The extra allowance a widow receives in the tax year of her husband's death, and the following tax year.
Widow's pension: A pension you receive from the Department of Social Security following the death of your husband, provided you were aged between 45 and 65 when your husband died or when you ceased to be entitled to a widowed mother's allowance. It is reduced if you were then under the age of 55.
If your husband was employed, you might also be entitled to a widow's pension from his former employer.
Widowed mother's allowance: A pension you receive from the Department of Social Security following the death of your husband provided you are aged between 45 and 60 and you have children or are pregnant.
Widower: A man who was married but whose wife has died.
Withholding tax: Foreign tax which is deducted in the foreign country when income is paid to you.
Work in progress: Partially manufactured stock you have on hand, or partially completed work on contracts under which you provide your service.
Work related expenses: Expenses which you incur in carrying out your employment.
Working families tax credit: A form of social security family income supplement, payable to families where one or more persons are in employment and have a PAYE code. The benefit is normally awarded for a period of twenty six weeks. From October 1999 payments were made directly by the Inland Revenue but from April 2000 employers of claimants will be instructed to make payments of WFTC along with salary or wages, on behalf of the Government . The employer does not know on what basis the benefit entitlement or amount has been worked out. The WFTC paid out (as far as the employer is concerned) can be is met out of the total tax and NIC which is deducted through the payroll and which the employer would normally hand over to the Inland Revenue. For this reason the payment is called a tax credit. However it is not a true tax credit in the hands of the recipient and does not require to be reported on your tax return. Nor should it enter into any calculations you or the Inland Revenue may make of your outstanding tax liability or rebate due at the end of the tax year.
Writing down allowances: Capital allowances given against tax for the cost of certain fixed assets on a year by year basis. May be replaced by first year allowances in the year the expenditure is incurred, and by a balancing allowance or balancing charge in the year the asset is sold.
Written down value: The cost of an asset, such as a car, after deducting amounts written off. For tax purposes it is the cost less capital allowances given to date.
The expenditure on items of plant and machinery may be pooled to facilitate the calculation of capital allowances. In this case the written down value will be the total of expenditure incurred, less any proceeds of sale, less any capital allowances given, and plus any balancing charges made.
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Registered in England No. 06734565 - HM Revenue & Customs Agent Ref: i5076F - Data Protection Number : Z1549382 - VAT Reg. 942 0667 26
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