Accounting Terms Encyclopedia
Accounting and tax in the UK come with their own language. Whether you are self-employed, running a limited company, or just managing your personal tax affairs, it’s easy to get lost in the jargon. This encyclopedia of common accounting terms has been put together to help you understand the essentials. Each entry is explained in plain English and arranged alphabetically for quick reference.
Adjusted Net Income
Your adjusted net income is your total taxable income after certain deductions, such as pension contributions or Gift Aid donations, have been made. HMRC uses this figure to decide whether you are entitled to the full personal allowance or if you will lose some of it. It’s also used to calculate the High Income Child Benefit Charge.
Autumn Budget
The Autumn Budget is the UK government’s annual financial statement, usually delivered by the Chancellor of the Exchequer in autumn. It outlines tax changes, spending plans, and key policies that affect individuals and businesses.
BADR (Business Asset Disposal Relief)
Business Asset Disposal Relief (BADR), previously known as Entrepreneurs’ Relief, allows individuals to pay a reduced rate of Capital Gains Tax (10%) when selling all or part of their business, subject to certain conditions.
Brought Forward
When a business or individual cannot fully use certain allowances, expenses, or tax losses in one tax year, they can be brought forward to future years. This is common with trading losses, capital losses, or unused personal allowances.
Capital Allowances
Businesses can claim capital allowances to deduct the cost of equipment, machinery, and certain vehicles from their taxable profits. This is instead of claiming depreciation, which isn’t tax-deductible. The most common is the Annual Investment Allowance (AIA).
Capital Gain
A capital gain arises when you sell an asset, such as property, shares, or investments, for more than you paid for it. The profit is subject to Capital Gains Tax, although allowances and reliefs may reduce the liability.
Corporation Tax
This is the tax paid on the profits of limited companies in the UK. The main rate is currently 25% (with a lower rate for smaller profits), but the exact figure can depend on thresholds and marginal relief.
Dividend Allowance
If you receive dividends from shares, you can benefit from a dividend allowance, which means a portion of your dividend income is tax-free. Anything above the allowance is taxed at rates depending on whether you are a basic, higher, or additional rate taxpayer.
Employee
An employee is someone who works under a contract of employment, usually subject to PAYE tax and National Insurance contributions. Employees have different rights and tax treatment compared to self-employed workers.
Lettings Relief
Lettings relief is a Capital Gains Tax relief that may apply if you sell a property that was once your main home but has also been rented out. It can reduce the amount of taxable gain, but restrictions apply since April 2020.
Limited Company
A limited company is a type of business structure where the company is a separate legal entity from its owners. Shareholders’ liability is limited to the amount they invest, and profits are subject to Corporation Tax rather than personal income tax.
LP10 Letter
An LP10 letter is sent by HMRC to warn that legal action may be taken to recover unpaid tax. It is one of the final stages before court action and should be taken seriously.
Marginal Tax Rate
Your marginal tax rate is the percentage of tax you pay on the next pound of income. For example, if your income falls into the higher-rate band, any extra income above that threshold will be taxed at 40%.
Net Income
Your net income is the amount you take home after all deductions such as income tax, National Insurance, pension contributions, and other withholdings have been subtracted from your gross income. For businesses, it refers to profit after all expenses, interest, and taxes have been deducted.
National Insurance
National Insurance contributions (NICs) are payments made by employees, employers, and the self-employed to fund state benefits such as pensions and healthcare. The type and rate of NICs depend on employment status and income.
P11D Form
A P11D is a form employers must submit to HMRC to report expenses and benefits provided to employees, such as company cars or private medical insurance. These can create additional tax liabilities for employees.
PAYE (Pay As You Earn)
The system by which income tax and National Insurance are deducted directly from an employee’s salary or wages before they are paid. Employers handle this on behalf of HMRC.
Pension
A pension is a savings scheme to provide income in retirement. Contributions can attract tax relief, and pensions are subject to special rules for withdrawals and taxation.
Personal Allowance
This is the amount of income you can earn before paying income tax. For the 2025/26 tax year, the standard personal allowance is £12,570, but it reduces once your adjusted net income goes above £100,000.
Profit
Profit is the amount left over when a business’s expenses are deducted from its income. It can be categorised as gross profit, operating profit, or net profit, each showing a different stage of financial performance.
Rent-a-Room Scheme
The Rent-a-Room Scheme allows individuals to earn up to a set threshold tax-free (£7,500 per year at present) from letting out furnished accommodation in their main home. This scheme is especially popular with people who take in lodgers.
Savings Interest
Savings interest is income earned from money deposited in savings accounts. A savings allowance exists, meaning some interest can be earned tax-free depending on whether you are a basic or higher rate taxpayer.
Self Assessment
The system HMRC uses for people to declare their income and calculate tax. While employees usually pay tax through PAYE, the self-employed, landlords, and company directors often need to file a Self Assessment tax return.
Simple Assessment (PA302)
A Simple Assessment is a calculation sent by HMRC (form PA302) when they can determine your tax liability without requiring you to fill out a full Self Assessment return. It is common where pensioners or employees owe extra tax that cannot be collected through PAYE.
Stamp Duty Land Tax (SDLT)
Stamp Duty Land Tax is a tax paid when buying property or land in England and Northern Ireland. The amount depends on the purchase price and type of buyer (first-time buyer, landlord, or company).
Tax Code
Your tax code is issued by HMRC and tells your employer or pension provider how much tax to deduct. It is based on your personal allowance and any adjustments for benefits, expenses, or underpaid tax.
VAT (Value Added Tax)
Also referred to as VAT (Value Added Tax), this is applied to most goods and services in the UK. Businesses with turnover above the VAT registration threshold must register and charge VAT. Standard VAT is currently 20%, with reduced and zero rates applying in certain cases.
Year End
The year end is the end of a company’s financial year. For most individuals, the UK tax year ends on 5 April. Businesses may have their own accounting year end, which affects when accounts and tax returns are due.
