Tax Terminology (Jargon Buster)
We know tax can seem complicated, so we try our best to use everyday language in our APARI products. Here are some explainers for tax-related jargon:
Accounting method: Cash vs Accruals
Most self-employed people and landlords can choose an easier way of calculating profits, known as ‘cash basis’.
Under ‘cash basis’, you record income when the money is received and expenses when the payment is made.
The alternative is an ‘accruals basis’, where you record income when you raise an invoice and expenses when you get a bill.
Using the cash basis, you will not need to calculate debtors and creditors at the year-end, perform a stock-take, or estimate accruals and prepayments.
Self Assessment Tax Return (‘SA100’)
This is the annual tax return, which determines how much income tax and National Insurance you need to pay. Approximately 12 million people file an SA return each year.
‘SA100’ doesn’t mean much - it’s HMRC’s reference number for the main tax return form - but it’s more convenient to write than ‘Self Assessment Tax Return’.
HMRC Online Account
Similar to how banks offer online banking, HMRC has tax services that you can access online. You may see it referred to as a Business Tax Account or Personal Tax Account.
APARI users need it to:
register for Self Assessment;
update contact details held by HMRC;
make tax payments.
After you’ve filed your tax return using APARI’s software, your HMRC Online Account will show that you’re up to date and confirm what you need to pay and when.
Construction Industry Scheme (‘CIS’)
This is a special way of taxing self-employed individuals that work for a contractor in the construction industry. Contractors take money out of your payments and pass it straight to HMRC.
These ‘deductions’ are an advance payment on your tax bill. At the end of the year, you include these amounts on your tax return to determine if there’s more tax to pay or if you’re due a refund.
If you register for CIS, your contractor will deduct less from your payments. You can register online here: https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor/how-to-register
Corporation Tax
You must pay Corporation Tax on profits from doing business through:
a limited company;
a foreign company with a UK branch or office;
a club, co-operative or other unincorporated association, e.g. a community group or sports club
Comma-separated values (‘CSV’)
This is a convenient bit of jargon that we do use at APARI.
A CSV file is a way of saving data in a table-structured format.
For APARI users, they’re really useful when importing or exporting transactions. Most people use spreadsheet software to view and create CSV files.
For example, to import a spreadsheet of transactions to APARI, first, save the spreadsheet as a CSV file, and APARI will be able to make sense of it.
End of Period Statement (‘EOPS’)
With normal annual tax returns, you make a legal declaration at the end to confirm that you’re giving correct and complete information to HMRC.
You’ll continue to do this under Making Tax Digital for Income Tax.
However, under MTD, you’ll need to make additional declarations. You’ll need to do it for each of your businesses when you finalise the profit for the year. This declaration is known as an End of Period Statement.
Employer Reference Number / Employer PAYE Tax Reference (‘ERN’)
An Employer Reference Number (ERN) is given to every business registered as an employer with HMRC.
It’s a unique set of letters and numbers used to identify employers for income tax and national insurance purposes. It is sometimes referred to as an ‘employer PAYE reference’.
Gig Economy
Temporary, flexible jobs. Companies hire independent contractors and freelancers instead of full-time employees.
Her Majesty's Revenue & Customs (‘HMRC’)
HMRC is the UK Government’s tax, payments and customs authority.
Landlord
It’s often convenient to refer to someone that gets rental income from a property as a ‘landlord’. We know the name doesn’t always fit that well, for example, if it’s only a small part of your income.
HMRC actually considers rental income to be a ‘business’.
Limited Company
A limited company is a company ‘limited by shares’ or ‘limited by guarantee’.
Limited by shares companies are usually businesses that make a profit. This means the company:
is legally separate from the people who run it;
has separate finances from your personal ones;
has shares and shareholders;
can keep any profits it makes after paying taxes.
Limited by guarantee companies are usually ‘not for profit’. This means the company:
is legally separate from the people who run it;
has separate finances from your personal ones;
has guarantors and a ‘guaranteed amount’;
invests profits it makes back into the company.
Making Tax Digital (‘MTD’)
Making Tax Digital (MTD) is a Government initiative to transform the UK tax return process.
The primary aim of Making Tax Digital is to make tax administration more effective, efficient, and easier for taxpayers through the implementation of a fully digitalised tax system whilst also reducing HMRC’s overheads for managing tax affairs.
Pay As You Earn (‘PAYE’)
The Pay As You Earn (PAYE) system is a method of paying income tax and national insurance contributions. Your employer deducts tax and national insurance contributions from your wages or occupational pension before paying your wages or pension.
Payment on Account
Payments on Account are advance payments towards your tax bill (including Class 4 National Insurance if you are self-employed)
Most people have to make 2 payments on account every year. Each payment is half your previous year’s tax bill.
Payments are usually due by midnight on 31 January and 31 July.
Rent a Room
The Rent a Room Scheme allows you to earn tax-free income from letting out furnished accommodation in your home.
The current allowance is £7,500 per year, which is halved if you share the income with your partner or someone else.
Self-Employed / Sole Trader
You’re self-employed if you run your own business as an individual and work for yourself. This is also known as being a ‘sole trader’.
You can keep all your business's profits after you have paid taxes on them. You are personally responsible for any losses your business makes.
If you operate through a limited company, you’re not a sole trader.
Taxable Income
This is the amount of income that will be taxable after any personal allowances have been deducted.
Value Added Tax (‘VAT’)
VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses. Businesses have to register for VAT if their turnover is higher than a certain threshold (currently £85,000).
It was introduced in 1973, replacing Purchase Tax, and is the third-largest source of government revenue, after Income Tax and National Insurance. It is administered and collected by HM Revenue and Customs.
APARI Software Ltd is an accounting software provider and does not supply specific tax advice. For more information please see our full terms and conditions.