| Accounting date |
The date when the accounting period ends. For example, if
the business accounting period runs from 1st July 2002 to
30th June 2003 the accounting date would be 30th June
2003. There is no restriction on when you chose to have
your accounting date unless you want to change it more
than once during a 5 year period. In this case Inland
Revenue approval will be required. |
| Accounting period |
The period for which accounts are prepared. An
accounting period should not normally be longer than 18 months. |
| Allowable deductions |
Inland Revenue approved expenses that you can deduct
from your net income to reduce the tax liability. |
| Assets |
Something that you own. An asset could be anything of long
term value such as a picture, antique, shares in a company, or your family home.
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| Base Rate |
Most interest rates are linked to the Bank base rate. This is
set by the Bank of England which in turn affects the interest
you pay for loans and receive on investments. |
| Basic Rate Tax |
The current rate of Basic Rate tax is 22% and this is the rate
of tax paid on income between £1,960 and £30,500, except
for savings income such as interest and dividends. Savings
are likely to be taxed at 20% and dividends at 10% on
income that falls in the Basic Rate tax band. |
| Beneficiary |
Someone who receives a benefit from someone or something.
This term usually refers to a person who receives income or
capital from a trust or the Estate of a deceased person. |
| Bonus |
An extra reward paid by employers to employees at a
certain time of the year or in recognition of performance. |
| Business |
Broadly speaking a business is one which trades with a view
to making a profit. |
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| Capital |
Money invested in a business by the partners. |
| Capital Allowances |
These are the depreciation of certain fixed assets that are
allowed against profits for tax purposes. |
| Capital Gains |
In brief, if you sell an asset for a profit, after deducting
expenses and reliefs, then you will have made a capital gain
which may be liable to tax. |
| Capital Gain Expenses |
These include costs of buying and selling an assets. These
expenses can be deducted in the calculation of the capital
gain or loss on the disposal of an asset. |
| Capital Gains Tax |
Tax charged on capital gains that you have made. |
| Class 1 National Insurance Contributions
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National Insurance contributions charged on your earnings if
you are an employee. |
| Class 2 National Insurance
Contributions |
Weekly National Insurance contributions that must be paid if
you are self employed or in a partnership. |
| Class 3 National Insurance
Contributions |
Weekly National Insurance contributions that you may pay
voluntarily to build up entitlement to some contributory
Social Security benefits. |
| Class 4 National Insurance
Contributions |
These are charged on business profits if you are self
employed or receive a share of partnership profits. |
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| Dividend |
Money paid out by a company to a shareholder out of
accumulated profits. An income tax credit equal to 10%
is assumed to have been paid by the company when
dividends are paid out. |
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| Earned Income |
This is income deriving from an employment or from a trade
that you perform either alone or in partnership. |
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| Goodwill |
This is the difference between the market value of a business
(i.e what somebody is prepared to pay for it) and the total of
the values of the individual business assets. |
| Gross |
The amount of money that you receive before any tax or National Insurance
is deducted. |
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| Higher Rate Tax |
When someone’s income falls into the Higher Rate tax band
(currently over £30,500 after personal allowances) then tax
at 40% will be paid on this income. Unless the income
exceeding this limit is a dividend then this is taxed at 32.5%. |
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| Indexation Allowance |
An allowance to take into account inflation on assets
acquired and subsequently sold. Indexation Allowance has
been frozen as at 5th April 1998 and replaced by Taper
Relief. |
| Inheritance Tax |
This is a tax payable on all of your assets when you die. No
Inheritance Tax is payable if your total assets including your
home are worth less than the Nil rate band (currently
£255,000). |
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| Joint Tenancy |
Land and property owned by one or more personal is
usually owned as joint tenants. On the death of a joint
tenant, their share should automatically pass to the other
tenant irrespective of the wishes within their Will. This
situation can be avoided if owned jointly as tenants in
common. |
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| Main Residence |
The place where you normally live and use as your home.
You are only allowed one main residence for Capital Gains
tax purposes. |
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| Net Relevant Earnings |
These are your taxable earnings from employment or self
employed business. The level of earnings may well
govern the amount of pension contributions that you can
make, based also upon your age. |
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| PIID |
This form details expenses and benefits paid to employees by
their employer. The form is purely a reporting requirement
for which fines can be imposed for non-compliance. The
form does not always result in tax liabilities for the
employee. |
| P45 |
A form which must be given to an employee leaving an
employment during the tax year. |
| P60 |
This is a certificate summarising income, tax deducted, and
National Insurance by an employer and may include early
employments in the same tax year. P60 is given by the
employer to the employee at the end of the tax year. |
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| Tax Year |
The year runs from 6th April one year to 5th April the
following year. The tax year 2003/2004 is the year ending on
5th April 2004. |
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| Value Added Tax (VAT) |
This tax must be charged by VAT registered businesses on
goods and services which they supply. This tax is
administered by H.M. Customs & Excise. |
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