headerphoto

Tax Glossary

We have tried to outline all the relevant terms below associated with accountancy, accounting, payroll and tax. 

 

a b c d e f g h i j k l m n o p q r


 

Accountant:  An accountant is a person professionally qualified to prepare a set of business accounts (financial statement) for you and/or your business.  They will also prepare a tax return for you, and may advise tax efficient life insurance policy is relevant life on business tax and various other factors including personal tax.  Additionally they could offer such services as book keeping, and help with other financial matters.

 

Accident Claims: An accident claim is a legal claim against another party. Information about some of the more common types of accident compensation compulsory winding up claims are contained within the following sections:
 

 

Accounting and Audit Fees: The amounts you pay your accountant for preparing business accounts. Will probably be deducted from your taxable income, meaning you only pay part of the fee - the rest is saved in tax
 

Accounting Date: This is final day in the period from which your shutters accounts are calculated - usually the end of your financial year. The date can be changed, but there are complicated rules. It is best to consult an accountant if this is required.
For example, if accounts are prepared on figures up to 30 June each year - the accounting date is 30 June.
 

Accounting Period: The period which your accounts are prepared. Usually this includes the twelve months of your Law Courses Financial Year, and very often mirrors the tax year.
There are many varied and complicated rules about when your accounting period is, especially when you start or finish a business.
 

Accruals: If an amount for which you have not yet been paid is to be included in your accounts before you receive payment, it will be shown as an accrual.

 

Wedding marquee hire

 

For stunning wedding marquees, excellent marquee hire service and affordable prices, you should definitely visit South England's leading wedding marquee hire service Provider. Specializing on Wedding Marquees, Party Marquees and Corporate Marquee Hire.
 

Allowances: Allowances are standard tax-free amounts set by the government every year. They are given to any one whose personal circumstances meet certain criteria. Things like Date of Birth and Marital Status may be important here.
 

The most common is the Personal Allowance. This is given to everyone resident in the United Kingdom for tax purposes.
 

Other main Investments and allowances previously included Married Couples Allowance and Additional Personal Allowance. Since 6th April 2000 married allowance have been restricted to those over 65. Additional Personal Allowance has now been replaced by Children Tax Credit.
 

Anti-avoidance: Anti-avoidance rules are included in tax legislation in order to close any loopholes which may be used to avoid paying tax.


 

Bad Debts: Money owed that has not been paid to you after a period of time is known as a bad debt.
 

Balancing Allowances: Business assets depreciate in value, and the cost can be claimed as an asset, the amount claimed should cover the depreciation.
 

When an asset is sold though, the actual depreciation may be more than Capital Allowances claimed already. If so, a Balancing Allowance can be claimed. This will be equal to the actual depreciation glass less Capital Allowances already given.
 

Balancing Charges: Business assets depreciate in value, and the cost can be claimed as an expense. This is known as a Capital Allowance. Over the life span of the asset, the amount claimed should cover the depreciation.
 

When an asset is sold though, the actual depreciation may be less than Capital Allowances claimed already, and thus, effectively excessive expenses have been claimed.
 

In this case, a Balancing Charge will be shown in the accounts. This will be equal to the Capital Allowances already given, less actual depreciation.
 

Base Rate: The standard rate of interest set monthly by the Bank of England.  It is the basis of the Official Interest Rate for a tax year. This is used when calculating taxable benefit on low interest loans from an employer.
 

Basis Period: This is the period for which your profits are taxable. Usually, this is the same as the accounting period, because you are taxed on the profit shown on your accounts.
Special rules apply in a) the first three years of business, b) when you finish business, or c) if you change your accounting date. 
 

These rules mean the profit on which you are taxed is not always calculated from one set of accounts, and the basis period can be different than the accounting period.
 

Business: Effectively, any time trade is carried out with the intention of making a profit, it constitutes a business.
 

In grey areas where profit is made from what could be considered to be a hobby, each case must be looked at individually.
 

Business Expenses: Many, but not all, outgoings of a business can be set against total income when arriving at taxable profits.
 

Business Income: Any form of income received by the business may be taxable.
 

This usually comes in the form of sales or fees etc, but also includes all other sources of income, such as investments or capital gains.
 

Business Losses: If the outgoings of a business are more than the income, a loss arises, which can be carried forward to set against future profits. If you are self employed losses can be used to reduce tax due on other income.


 

Capital Allowances: When an asset is used for business purposes, the purchase cost is not normally allowable as an expense. This is because the asset still has a value after it has been used. However, the value of the asset will decrease over time. An allowance to reflect this depreciation can be claimed instead. This is known as a Capital Allowance.
 

Capital Gains Tax: If you own an asset that has gone up on value which you sell for a profit, you may need to pay Capital Gains Tax (CGT).
 

On its most simple level, CGT is the tax payable on the increase in value of an asset over the period it is owned, after making adjustments for inflation and other factors. (See Capital Gains Tax - Calculations.)
 

CGT is not strictly the same as Income Tax, although it is dealt with at the same time.
 

Unlike Income Tax though, the Basic Rate of Tax is 20%. That means 20p in the pound is paid in tax, rather than 22p. The higher rate remains 40%.
 

Capital Gains Tax - calculations: CGT is charged on profits made when something is sold - essentially the selling price less purchase price.
 

Adjustments are made to this amount to account for various factors, including cost of living increases, amounts spent improving the asset, and costs incurred buying or selling the asset.
 

After working out the profit, or Chargeable Gain, the annual exempt amount is deducted - this year's limit has not yet been set (£7700 in 2002/3). Tax is payable only if the profit exceeds this amount.
 

Capital Losses: When an asset is sold for less than the acquisition cost, a Capital Loss has arisen.

 

Find out more on this issue at http://www.consumerfinanceclaims.org.uk

 

This loss can be carried forward to set against future capital gains. In some cases, though not commonly, it can be set against other income in the same year.
 

Chargeable Assets: Capital Gains Tax only applies if the item sold is a Chargeable Asset.
The most commonly sold chargeable assets are shares. Other such assets include, properties held for rental, business assets, second homes and other assets worth more than £6000. Non-chargeable assets include your main home, your own car, investments held in PEPS, and personal assets worth less than £6000.


 

Debt Collection: If you have to employ a debt collector to chase up money that is owed to you, your accountant may set the costs against your income when arriving at your profit.
 

Debtors: People who owe you money are termed "debtors". When accounts are prepared, even if payments are outstanding from debtors, the details will still be shown. (See Debt Collection, Bad Debts.)
 

Deferment - National Insurance: National Insurance payments cannot exceed a set amount in one year. When NI applies to more than one source of income, payments may be higher than this upper limit if made in the usual way. A deferment can be requested in these cases. Any shortfall is made up at the end of the year.
 

Department of Social Security: This is a Government department dealing with State Benefits. It previously handled National Insurance payments, but this has now been taken over by the Inland Revenue.
 

Depreciation: An asset used in a business on an ongoing basis retains a residual value. However, this value will reduce over the lifespan of the asset. This reduction in value is the depreciation and can be claimed as a deduction from business profits.
 

Director: In the past, the income of directors was treated in a substantially different way to other employees. Most obviously, income was taxed when it was earned rather than when it was paid.
 

For tax purposes, Directors' income is treated in the same way as other employees, although there are differences in the way National Insurance and company benefits are dealt with.
 

Directors' Fees: Any fees paid over and above normal income to a director should be treated in the same way as other income.
 

Disallow able Expenses: The accounts of a business come in two forms - business accounts and accounts for tax purposes. In the former, all income and expenses will be shown, to reflect the exact financial situation. These accounts are prepared first and then used as the basis of the calculation of your profits for tax purposes.
 

In the former, some expenses will be shown which cannot be used to reduce taxable profits. These are disallowable expenses. When the tax accounts are prepared, they are added back on to profits.
 

Dispensation: All payments to employees are taxable - including business expenses. Strictly an employer should advise the Revenue, followed by a separate claim by the individual for tax relief. Clearly though, this would serve little purpose.
 

After joining The Local Bookkeeper all franchises will be trained in our business model aimed at delivering a return on investment within the first year, with use of localised brand, website, marketing support, as well as a string of quality control systems and procedures.

 

Dispensations solve the problem. Quite simply, an employer reaches agreement with the Tax Office that valid business expenses will not be declared as income of the employee. The employee then does not need to make a claim.
 

It is important to note that employers do not have to tell employees about dispensations. It is possible under self assessment to claim business expenses that have been covered already. It may be best to ask if this applies to you.
 

Disposals: This is an all-encompassing word that you may see in conjunction with the sale, loss, gift, theft, swap or other disposal of an asset.
 

Dividend: This is a term used for the money paid out on investments such as shares, unit trusts etc.


 

Earned Income: This is any income you get from your work.
 

This could be employment, directorship or self employment. Income from an occupational pension is treated in the same way as employed income in many respects.
 

Emoluments: The technical term for income from employment is emoluments. The correct way to describe salary or wages is "the emoluments of the office". The term covers company benefits, such as car or medical insurance also.
 

Employee: An employee is someone who works for someone else.
 

However, because it is often beneficial for tax purposes to be considered self employed this can become a contentious statement, especially in grey areas, such as commission based salespeople. This needs to be looked at carefully if there is any doubt

The opportunity is open to only trained and qualified financial professionals including bookkeepers, accountants, management accountants, accountants and bankers.
 

Employer: An employer operates a payroll, deducts tax and National Insurance, and pays them on employee's behalf.
 

Employment Income: Employment income does not just mean pay, salary or commission. It also includes any company benefits, such as car or medical insurance.
 

Enquiries: The advent of Self Assessment gave the Inland Revenue new powers to enquire into your tax return. The key phrase is "enquiry under s.9A of the Taxes Management Act 1970".
 

Although the enquiry must be taken seriously, they are usually just to clarify certain points on the return. It could also be a random enquiry.
 

If you are at all unsure, you should seek further advice.
 

Enterprise Allowance: This is a State Benefit to assist unemployed people in starting their own business. The payments are taxable.
 

Enterprise Investment Scheme: EIS is designed to encourage investment in unquoted companies. Subject to certain criteria, tax relief is available on money invested in start up businesses, with the possibility of getting the investment back at a later date.
 

Enterprise Management Incentives: From 28 July 2000, a qualifying company can grant an Enterprise Management Incentive to a maximum of 15 key employees. There will be no Income Tax or National Insurance to pay when the option is granted.
 

The employee will be able to buy shares at a later date for the value at the date of the option.
 

The maximum value of these shares at the time of grant is £10000. The option must be exercised within 10 years.
 

To qualify, the employee must have been employed for at least 25 hours per week, or at least 75% of their working time, which includes self employment.
 

When the shares are sold, taper relief will apply from the date the option was granted on any Capital Gain
 

Entertainment: This is a term used loosely in tax to describe the provision of hospitality, lunching clients or contacts, and golfing events etc by a company.
Rules specify whether the amount is shown in the company accounts or on an employee's P11D as a taxable amount. Usually though, the individual should not suffer any tax as a consequence.

 

The ground-breaking scheme is being unveiled by accountants , who have been servicing the franchise industry as leading accountancy firm for many years and have a wealth of experience in both advising franchisors and franchisees on accounting and franchising.
 

Exempt Income: Some income is not taxable, known as exempt income. Examples include income from an ISA, premium bond prizes, some social security benefits, damages for personal injury.
 

Expenses - Employment: Out of pocket expenses incurred whilst doing a job can be claimed against income from that job, up to the amount incurred, but less any amount reimbursed by the employer.
To be allowable, the following must apply:
The job could not be done without incurring the expense.
The expense applied only to the job itself.
There was no personal benefit from the expense, other than incidentally.
Unless all three points can be satisfied, the Revenue may not allow the expense.
 

Expenses Payments Received: When an employer reimburses business expenses incurred by an employee the payments are known as expenses payments received.
 

The amounts paid are actually taxable, although an expenses claim can offset this. In many cases an employer will have a dispensation so that this is not necessary.

 

Farmers' Averaging: As farmers' income goes up and down from year to year, it is possible to take two years into account and average them in certain circumstances. This can offset the effects of fluctuations in income as a higher rate band could apply one year, but not the next.
 

First Year Allowances: Usually, Capital Allowances (i.e. depreciation on assets used for business) are based on 25% of the value at the start of the year.
 

For small businesses, and only in the first year, up to 40% of the value can be claimed.
Furthermore, up to 100% of the cost of new technology can be claimed as a Capital Allowance, a measure introduced in April 2000.
 

Flat Rate Deduction: A series of standard expenses rates have been agreed between the Revenue, employers and unions. This makes an individual claim easier to work out.
The individual looks up the industry he or she works in, and then the nearest job match in that particular industry.

 

Gift Aid: Tax relief is available on payments made to approve charities. In the past, if this was done via a Gift Aid Scheme, specific criteria had to be met. From 6 April 2001 though, all payments to charity are treated in the same way. See Charitable Gifts Relief.


 

Higher Rate Tax: The highest rate of tax payable by individuals in the UK is 40%.
 

This rate only applies if the taxable income exceeds the basic rate tax band. For example, if the basic rate band is £29900, no higher rate tax would be payable if taxable income was £28000. If the income rose to £30900, higher rate tax would be payable on only £1000 (or £30900 - 29900).
 

Home as an Office: Many people work from home, setting aside a room to use as an office. The costs incurred may be claimed against tax.
 
 

ICTA: Or ICTA 1988, an abbreviation used by the Inland Revenue and accountants for Income and Corporation Taxes Act 1988.
 

It is important because most of our current tax legislation is held in that Act.
 

Income for Tax Purposes: As some income is exempt from tax, the income for tax purposes in not necessarily the total income.
 

Income from Employment: Income from employment is not just salary or wages. It also includes such things as company perks, commissions and even expenses payments made to employees.
 

Income from Land and Property (not rents): Although most income generated by land or property will be classed as rental income, sometimes it cannot be as it is not exactly rent. It is taxable all the same. Such income includes leases and licenses for use of the land, and things like way leaves.
 

Income Tax: Individuals pay income tax, on many types of income, at various rates, and with numerous allowances.
 

Independent Financial Adviser: Also known as IFAs, these are professionals who can make sure that you invest your money wisely. They are important from a Tax perspective because they will have knowledge of the risks or benefits of certain investments, as well as the tax implications.
 

Indexation: In relative terms, an £100 was worth more ten years ago than today. Indexation adjusts for this increase in the cost of living within CGT calculations by reducing the profit in real terms, based on changes in the Retail Price Index.
 

Taper relief replaced Indexation allowance in 1999. However, if an asset is sold now that was owned before March 1998, indexation still applies up to that date.
 

Indexation Allowance: In relative terms, an £100 was worth more ten years ago than today. Indexation adjusts for this increase in the cost of living within CGT calculations by reducing the profit in real terms, based on changes in the Retail Price Index.
 

Taper relief replaced Indexation allowance in 1999. However, if an asset is sold now that was owned before March 1998, indexation still applies up to that date.
 

Individual Savings Account: Also known as an ISA, this is a tax free savings account available since April 1999. There are limits on the amounts it is possible to invest in such an account.
 

Inheritance Tax: This is commonly abbreviated to IHT.
 

If the value of the estate is below £242,000 in the current year no inheritance tax is due. If the estate is worth more, the excess will be taxable at 40%.
 

Inland Revenue: The Inland Revenue is commonly seen as a vast government department, staffed by bureaucrats, whose aim is to get as much most tax as possible from everyone.
 

The reality is different. The staff is usually friendly, knowledgeable and helpful. Their aim is for you to pay the tax you are due to pay - no more, no less.
 

Interest: This comes in two forms - income and outgoings. Tax is paid on the former, whereas tax relief may be due on the latter.
 

Investment Income: This is a generic term, commonly used to describe income from your investments, as opposed to earned income.


 

Legal Expenses: Legal expenses do not usually qualify for tax relief, but there are exceptions.
 

If a person really has no choice about incurring legal expenses in the process of generating taxable income the expense may be allowed. For example, a landlord may take legal proceedings against a tenant, in which case the cost may be available to set against the income from that property.
 

This is one area where further advice is fairly important as the matter can be fairly contentious with the Inland Revenue.
 

Loan: The way a loan is treated depends on who has made the loan.
 

If the loan was made to the individual, the interest paid may qualify for relief.
 

However, if the loan was made by the individual, and he or she received interest on it, the amount received would be taxable.
 

Loss: A loss is made when income is less than outgoings. This can sometimes be used to reduce other income or subsequent income from the same source.
 

For example, if a person's self employed income is low, a loss may arise. This can be set against other income.
 

As a rule of thumb, if income from a particular source would be taxable, it is often possible that arises instead can be used to reduce tax in some way.
 

Lower Rate Tax: The lower rate of tax in the current year is 10%. This is chargeable on the first £1920 of taxable income.
 

For example, with taxable income of £6000, the first £1920 is taxed at 10%, or £192, leaving £4080 taxable at the next rate, 22%.


Machinery: This is usually lumped together with plant, and called "plant and machinery".
 

Together they are a loose term for any items used in business on an ongoing basis. (As opposed to things like stock, raw materials and other disposables.)
 

Machinery includes such things as machines, cars and vans etc.
 

A tax deduction cannot be claimed for the purchase cost. Instead, the cost of depreciation is claimed, known as a Capital Allowance.
 

Maintenance Payments: Before 6 April 2000, tax relief could be claimed for maintenance payments (including CSA payments). Since then the relief is only available if one or more party to the marriage was over 65 at that date.
 

A claim for relief prior to 6 April 2000 can still be made.
 

Maintenance Received: Before 6 April 2000, tax may have been charged on maintenance payments received, depending on how much relief was being claimed by the person who made the payments.
 

Since then, tax relief on maintenance has been restricted, and no tax is payable on receipt of the payments.
 

Motor Expenses: If an employee uses his or her own car for work, the costs incurred can be claimed as an expense against tax. Quite simply, an amount per business mile is claimed, depending on the engine size of the car, using Revenue published rates.
 

Prior to April 2002, you could also claim the actual amount of the expenses if you wished.
 

First, an accurate figure for all expenses incurred was worked out, plus an amount for depreciation. This was then apportioned between business mileage and private mileage and a claim made.
 
 

National Insurance: National Insurance is payable on top of tax. In many ways, it can be seen as an extra tax, as a certain percentage of income is paid, subject to limits and thresholds, and at different rates depending on the type of income.
 

Other than the way the payments are used by the Government, the essential difference between Tax and NI is that employers make NI payments on top of yours. This does not happen with tax (although companies do pay Corporation Tax).
 

The final difference is that the amount of income on which NI is paid is "capped". This means that NI payments cannot ever exceed a certain amount.
 

National Insurance Number: National Insurance numbers should be unique to each individual. The Inland Revenue uses it to identify a person's records.
 

National Savings: This government backed organisation offers a number of different savings options. Often this type of account is referred to as an NSB accounts. One specific type of account, for pensioners, is often called a "granny bond".
 

Some NSB accounts have specific tax treatments. For instance, the first £70 of interest paid on ordinary NSB accounts is tax free, although these accounts offer low rates of interest.
 

Net: Income before tax is referred to as gross income. After tax has been deducted, it becomes net income.
 

This term is also used for some outgoings where tax relief is given when you make the payments. A good example is Personal Pension Schemes where the actual payment made is the total less tax relief due. So, for a total of £100, the actual payment you make would be only £78. The tax relief has been given, being 22% of £100.
 

In these cases, the payment you make is known as net of basic rate tax.
 

Occupational Pension: This is the pension paid to as a result of being in a company pension scheme. It is taxed through PAYE, in the same way as salary. Usually allowances are set against pension income.
 

Other Income: If income is received that does not have its own section on the Tax Return it is known as other income.
 

Overlap Period: In most cases, accounts are prepared up to a certain date. Tax is then paid on the bottom line amount.
 

However, when a business starts or an accounting period changes, complex rules apply. The same accounting period may become taxable in two different tax years. Effectively, tax is paid on the same income twice. That period is called the Overlap Period.
 

Overlap Relief can be claimed to prevent income being taxed twice.
 

Overlap Profit: In most cases, accounts are prepared up to a certain date. Tax is then paid on the bottom line amount.
 

However, when a business starts or an accounting period changes, complex rules apply. The same accounting period may become taxable in two different tax years. Effectively, tax is paid on the same income twice. That profit taxed twice is called the Overlap Profit.
 

Overlap Relief can be claimed to prevent income being taxed twice.
 

Overlap Relief: Overlap Relief can be claimed to balance out overlap profits.
 

The relief will be the same amount as the overlap profit already taxed, and will be set against profits in a later tax year. Thus the profits of that year are reduced by an amount equal to the profit taxed twice.
 

This does not usually happen until the business ceases, but can also happen when an accounting period is extended.

P11D: An employer that provides taxable company benefits has a duty to work out the taxable benefit, and advise the employee and the revenue of the amounts. This is done on a form P11D.
 

It shows the cash equivalent, or taxable value, of any taxable benefits. This has to be done before 6 June every year.
 

P2: Everyone who is employed or receiving an occupational pension has a tax code worked out by their tax office. If this is not standard a tax code is sent. This form is called a P2, or variant.
 

The form shows the allowances and deductions used in calculating the code, and perhaps some further comments.
 

Most people have a standard code, and are never sent a P2.
 

P45: When someone leaves a job, he or she will be given a P45. This shows income and tax figures for the tax year up to the leaving date.
 

It comes in four parts, each showing the same information:
Part 1 - Sent this to the employer's tax office.
Part 1A - For the individual's own records.
Parts 2 & 3 - To be given to any new employer. One part is sent to the new tax office, the other is used for the next payroll calculation in the new job.
 

P60: A P60 shows pay and tax for a particular tax year, along with other connected bits of information.
 

P85: The form P85 asks all the relevant questions when someone goes overseas for some time. This allows the tax office to decide how the personís tax affairs should be handled after leaving the UK.
 

The P85 also allows for a refund of tax to be claimed if there will not be any more taxable income here for the rest of that tax year.
 

P86: The form P86 asks all the relevant questions when someone arrives in the UK for the first time, or after being overseas for some time. It allows the tax office to decide how the personís tax affairs should be handled in the UK.
 

The P86 may also have a form DOM 1 attached, which can be used to make a domicile ruling if necessary.
 

P9D: Taxable company benefit provided to an employee is shown on a form P11D.
 

However, company benefits are not taxable if the employee is paid at a rate of less than £8500 per year. In this case, the employer advises the revenue of the situation on a form P9D. Only one is needed for all affected employees of the company.
 

Partnership: Some organ is at ions are formed on a partnership basis rather than as a limited company. This is where two or more individuals join up in business. Special rules apply to the profits of the partnership, and how they are dealt with for tax purposes.
 

PAYE: PAYE stands for Pay as You Earn.
 

As you earn money, your employer will work out how much money you should pay, and will pass it across to the Revenue on your behalf.
 

Payment on Account: Payments on account arise when a person has a tax bill for a particular year that is more than 20% of the total tax liability for the year.
The payments can be seen as advance payments for the next year's bill. They come in two stages in January and July, each equalling half of the tax outstanding for the year before.
 

The best way to explain is probably an example.
Miss X's total tax liability for the tax year 2000/01 was £7500. But most of her income was from renting a property and was not taxed before she got it. So, she had to pay a lump sum of £5000.
 

As £5000 is more that 20% of £7500 she will be asked to pay on account, for the next tax year, 2001/02. The payments will be £2500 twice, payable by 31 Jan 2002 and 31 July 2002.
 

If next year's tax bill is likely to be reduced (in Miss X's case may be she sold the property) the payments on account can be as well. However, interest may be charged if the reduction is too great.
 

Pension: A pension is the payment made to you from a pension scheme, or from your entitlement to State Retirement Benefit. It is taxable, but is not chargeable to National Insurance.
 

PEP: Stands for Personal Equity Plan. They were a form of tax free investment in the nineties, now replaced by the ubiquitous ISA.
 

Personal Allowance: This allowance is available to everyone. In the current tax year, it is £4615, which means the first £4615 of income is tax-free.
 

The allowance makes a basic rate taxpayer £1015.30 better off, and a higher rate taxpayer by £1846 better off.
 

Plant: This is usually lumped together with plant, and called "plant and machinery". Together they are a loose t

erm for any items used in business on an ongoing basis. (As opposed to things like stock, raw materials and other disposables.)
 

Machinery includes such things as office furniture, shop tills etc.
 

A tax deduction cannot be claimed for the purchase cost. Instead, the cost of depreciation is claimed, known as a Capital Allowance.
 

Profit: This is simply income less expenses. It could apply to trading income, rental of a property, or even sale of an asset.
 

The taxable profit of a business may not be the same as the trading profit. This is because some expenses shown in business accounts are not allowable for tax purposes.
 
 

Rateable Value: Every property used to have a rateable value, which was used to work out the amount of local rates payable. The rateable value of a property is still used where an employer provides accommodation for an employee.
 

Reducing Payments on Account : Payments on account arise because a large tax bill arises in one year. In many case, this will happen year on year, and the payments should be made. In some instances, there will not be a large bill next year. (For example, if a person goes from being self employed to being PAYE, most of the tax payable will be deducted from salary.
 

In these cases, the payments on account can be reduced, to NIL if required.
 

It is important to remember that interest may be charged if the reduction is too great, and a tax bill does arise in the year.
 

Relief’s: The basis of taxation is that taxable income is calculated, and a certain percentage of that amount is payable in tax. It follows that one way to reduce tax is to reduce the taxable income.
 

If a relief can be claimed, it will do this. Consequently, a relief will reduce the tax burden.
 

Many different types of relief are available. As a general guide, many outgoing, such as contributions to pension schemes, qualify for tax relief. Whoever the payments were made to can advise if tax relief applies. Rental Expenses : When a property is rented out, many of the expenses incurred in the rental, such as property agents' fees, or cleaning costs, can be claimed as a deduction from the rental accounts.

Rental Expenses : Rental expenses fall into two categories.
 

1. Revenue expenses: Ongoing expenses incurred in the rental of a property are deducted from the annual rental income to arrive at the profit. They may include letting agents' fees, house insurance etc.
2. Capital Expenses: These are expenses on the fabric of the property. For instance, an extension to a house, or new wiring. These improve the property, and usually increase its value. Such expenses can only be claimed against any future capital gains tax.
 

Some expenses may be seen as capital expenditure, but because they are necessary to make the property habitable, they are allowed as revenue expenses. For example, replacing a broken toilet with a new one.
 

Retirement Relief : Capital Gains Tax is often payable when a business or business assets are sold for a profit. Retirement relief stops this happening when the only reason for the sale is the retirement of the proprietor.
 

If Retirement Relief is available, the first £50,000 profit on sale of a business will be exempt from Capital Gains Tax. Thereafter, only half of the next £150,000 profit is chargeable. When the profit exceeds £200,000, any excess is taxable in full.
 

Although the rules are necessarily complicated, the claimant must usually be over 50 (although a claim is still possible if for retirement due to ill-health below that age). After that, it must be proved that the retirement is genuine.
 

Rollover Relief : Rollover Relief can be claimed against Capital Gains Tax due on sale of a Business Asset.
 

Basically, a new asset must be purchased out of the proceeds of the disposal. Assuming this qualifies for relief, the gain will be "rolled over" until the eventual disposal of the new asset.
 

For example, a shop is sold giving a chargeable gain of £25000. A new shop is then purchased for £100,000. If Rollover Relief is claimed, when the new shop is eventually sold, an effective purchase price of £75000 will be used.

 

Tax Glossary Plus
 

Accountants to rely on:

We're UK-based Financial Accountants who exist to help small businesses and their owners with all of their financial and taxation challenges.

Accountancy Services

Getting the right support and information, when you need it most, is vital for any business. Delays mean missed opportunities and bad decisions. It is especially important for new and growing small businesses to have professional assistance available immediately it is required

We offer a comprehensive range of services:

  • Audit
  • Accountancy
  • Taxation
  • Taxation: Farming
  • Business Advisory
  • Computer Services
  • Sage Software & Support

www.att.org.uk
Professional body governing tax technicians in the UK

www.hmrc.gov.uk
HM Revenue & Customs (combined body in 2014)

www.tax.org.uk
Professional body regulating Chartered Tax Advisers