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Yahoo! Finance UK & Ireland - Tax glossary
Category: Economy and Finance > Tax
Date & country: 17/01/2008, UK
Words: 491

A country other than England, Northern Ireland, Scotland and Wales where UK tax laws do not apply.

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.

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 …

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.

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.

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, …

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 intere …

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.

Term used when you buy (acquire) something.

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 …

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 …

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.

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 …

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.

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 …

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.

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 usuall …

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 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.

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.

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 u …

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 ma …

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.

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 1999/2000, the basic rate of income tax is 23%. 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 rat …

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, …

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 …

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.

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 (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.

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.

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.

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).

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.

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 gains tax
Tax charged on capital gains that you have made.

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.

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.

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 recei …

Casual earnings
Income you get from irregular work.

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 …

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 i …

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 …

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.

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.

People under the age of 18. May also be used to refer to your son or daughter, even if aged 18 or over.

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.

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)

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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.