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

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 …

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 y …

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 incom …

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 you …

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.

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 …

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.

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.

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.

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.

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 earn …

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 yourse …

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 …

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 cha …

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 expenditure
Expenses you continue to pay relating to a business you used to have.

Postcessation income
Income you continue to receive from a business after it has stopped trading.

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 transfe …

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.

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.

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.

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 deduc …

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.

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.

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.

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.

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.

Acronym for PAYE settlement agreement.

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.

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 …

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.

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.

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.

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.

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 we …

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.

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, a …

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.

Amount paid for occupying land and/or property owned by someone else.

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.

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).

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 …

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.

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.

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.

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 relev …

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 …

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.

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.

Acronym for Retail Price Index.

Salary and wages
Regular amounts of income paid to you by your employer under your contract of service, often weekly, 4weekly or calendar monthly.

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.

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, b …

Acronym for Save As You Earn.

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 …

See Schedular System of Taxation.

Scrip dividends
A dividend which you elect to receive in the form of shares instead of cash.

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 addit …

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)

You are separated if, although still married, you are no longer living together with your spouse.

Acronym for State Earnings Related Pension Scheme.

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.

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.