Through our tax guide, and when dealing with HMRC (HM Revenue and Customs!), you’ll come across abbreviations for key items. Below is a listing of common ones and we’ll add to this list as needed.
Accruals
In most businesses, year end accounts are produced using the ‘Accruals concept’ – effectively this means allocating any sales or expenses against the financial year the work was done (and not paid).
Aged Creditors
These are people who you owe money to (Creditors), and how old this debt is
Annual Return (or Confirmation Statement)
Each UK Limited company has to submit one each year, which provides details of the business to Companies House. This costs £13 per year.
Asset
An item owned by the business that has a monetary value. These can sometimes be called ‘Fixed Assets’ (which usually last over a year, e.g. property, computers, furniture, etc) or ‘Current Assets’ which can be stock which you hold and expect to sell within the year, or stationery which is expected to be used.
Balance Sheet
Lists the assets, liabilities and the equity of a business to calculate the net worth.
Benefit in Kind
These are items which employees or directors of companies receive but are not included in their salary or wages, such as company cars, private medical insurance, etc. These still may have tax applied and the employee usually will receive a document called P11D at the end of the year detailing any such benefits
Capital
This is usually provided at the start of a business, and can be the reinvested in the company at a later time
Capital Allowances
Under traditional accounting, some assets can be classed under capital allowances, such as larger purchases or items which last longer than one year. This doesn’t usually apply to Cash Basis accounting.
Cash Basis Accounting
This is a simple accounting process of registering income and expenses as they happen. If you buy something today, you pay today and register the date against your company accounts.
It is the simplest way to run business accounts as there’s no monies outstanding or overdue. Most consultants (if not all) will use this type of accounting as it is rare that any goods or services are provided on credit, or with payments being made 30 days after being invoiced.
Confirmation Statement
This replaced the Annual Return and contains the same information, including details of Persons of Significant Control (PSC).
Contractor
Someone who provides a service to a client for a set fee, usually for a set period as part of a contract. This is different to being employed as the contractor will need to complete their own tax return as a result, based on the figures of their contract work.
Corporation Tax
This is a tax on the company profits which have to be paid within 9 months of the end of the accounting period. This doesn’t apply to self employed individuals. Corporation Tax is currently 19%, increasing to 25% by 2026.
Cost of Sales
This is an accounting term which basically means the items bought to sell on. E.g. Cost of Sales could be purchasing recipe books to sell in your group shop as the ‘cost of sales’ would be the price paid for the book.
Credit Note
These are usually issued to correct invoices which have been sent from companies, for example where a refund has been processed or items have been returned.
Creditor
This is another person or company which is owed money (i.e. a supplier)
Current Assets
Assets which are short-term and unlikely to be held for more than a year.
Current Liabilities
These are amounts which are due to other people which are required to be paid within a year.
Debtor
Someone who owes the business money (i.e. customers)
Depreciation
This is an accounting term and relates to the value of an item after a period of time. For example, buying a new car could cost £30k, but after year one it would be worth less than this. Depreciation allows the company to write off the tangible asset value over time.
Director
Someone who runs a limited company, and usually own shares in the company.
Director’s Loan Account
Any money which the director takes from the business which isn’t salary, dividends or expense payments – these are temporary loans which need to be paid back to the company.
Dividends
These are payments made to the company shareholders based on the profits of the company.
Employee
Someone who works for a company and receives a salary or wage for their work.
Employer
The opposite of employee, someone who hires people and pays them for their work.
Employer’s Liability Insurance
A form of insurance that protects employers for any claims made against the company by their employees whilst they are working for the company.
Fixed Assets
Items which are designed to be kept by a business for more than a year, such as furniture.
Franchise
A licence which is granted by a company which allows an individual or company (franchisee) to market its products and services. See: Franchise Fees
GDPR
General Data Protection Regulation – introduced on 25 May 2018, this is a new law which covers data protection in a more modern way than the Data Protection Act.
Intangible Assets
Things that a business owns but you cannot touch – such as trademarks
Inventory
The stock which is owned by a business
Invoice
A document which businesses issues to customers so that they pay for the goods or services which they have been provided with.
IR35
This is a complex area of law which was brought in to avoid limited companies being set up to cover for people who were actually employees of a different company. Through this, the company would be paid for the individuals work, which in turn would pay out in dividends to the ’employee’ which avoid some tax areas (such as National Insurance).
Liability
These are debts or monies which are owed, such as mortgages, loans, etc
Limited Company
In a limited company, the organisation is a separate entity and has its finances separate from the director or owner.
National Insurance Number (NI)
A reference number provided by the Government for anyone who works in the United Kingdom, or who accesses the social security system. The NI number ensures you are taxed correctly.
P11D
A form completed by an employer each year, detailing the benefits which an employee has received, such as private healthcare, companies cars, etc.
P45 / P46
When you end employment, you’ll be issued a P45. This is a record of the amounts you have been paid during the tax year, and any tax which has been deducted.
If you don’t have a P45 available when starting a new job, you can complete a P46 which allows the tax system to link up your details and ensure you’re taxed appropriately.
P60
This is a summary of the amounts you’ve been paid and any tax deducted during a specific tax year if you remain in employment. Your employer is legally required to provide this to you each financial year where your employment continues into a new financial year.
Partnership
A partnership is where you and another individual(s) join up to create a business and share responsibility for your business, including assets, income and losses. SW Consultancy is not a partnership but a Franchise.
PAYE
The main tax system for employees is called Pay As You Earn (PAYE) and means that your employer is legally required to deduct tax before you receive your wage, and pay this direct to HMRC on your behalf. Your P45 or P60 summaries the totals for you.
Payment on Account (PoA)
If your Self Assessment Tax Return bill is more than £1,000, you’ll need to make Payments on Account. Check the article for more information.
Professional Indemnity Insurance
Protection for your business against any customer taking legal action against you for a financial loss caused by negligence.
Profit and Loss
The same as an Income Statement, this shows the business net profit and loss over a specific period.
Real Time Information (RTI)
Introduced in 2013, this requires employers to send data electronically to HMRC every time they run payroll.
Self Assessment Tax Return (SATR)
A requirement of anyone who is self employed or meets one of the criteria for completing a tax return, this is an annual summary of monies earnt by an individual and the tax due.
Sole Trader
A person who is the owner of a business, and solely responsible for all profits and losses which it makes.
Tangible Assets
Things that the business owns which you can touch, e.g. a desk, computer, etc
Trial Balance
Used in Bookkeeping and Accounting, a trial balance provides a breakdown of where money is (or has been spent) within a company at a given time.
Unique Tax Reference Number (UTR)
A number which identifies you to the tax office – read more.