Keeping Tax Simple – common tax terms explained
Updated: Jun 4, 2020
You might have come across the phrase ‘tax doesn’t have to be taxing’ - and it’s true! We’re here to clear up any confusion with a no-nonsense glossary of tax terms. Let’s get started…
Capital gains tax – a tax you pay on the profit you make when you sell something. You only pay tax on the profit, not the total cost of whatever it is you’re selling. Find out more on HMRC’s website.
Corporation tax – a tax on profits that limited companies must pay every year. Take a look at HMRC's website for more information.
Income tax – the amount of tax you pay based on your income. Everyone has a tax-free personal allowance - when you’ve gone beyond the threshold, you’ll start paying tax (the amount of tax you pay depends on your earnings).
Making tax digital – from April 2019, all VAT registered businesses will need to send updates to HMRC digitally every three months. Keep an eye out for updates from us…
Tax – money that individuals and businesses pay to the government which goes towards funding public services. The amount of tax you pay depends on your financial situation.
Tax code – a code which identifies how much tax you’ll pay. If your circumstances change it’s important to let HMRC know as soon as possible so your code can be changed, if needed.
Tax point – also known as ‘time of supply’ (HMRC), the tax point is the date when the business activity takes place for record keeping purposes. HMRC outline the standard tax points to be aware of.
Tax refund (rebate) – the money refunded to you when you’ve paid too much tax (a nice surprise if you weren’t expecting it!).
Tax relief – when you pay less tax based on your circumstances. For example, if you’re self-employed and work from home, you can claim back tax for a proportion of your bills. Or, if you’re employed, you can claim for travel or other expenses when you’ve used your own money. Find out more on the HMRC website or speak to your accountant.
Tax return – the form you fill in if you’re self-employed to tell HMRC about your financial situation for a given year. It’s important to keep records of everything – income, business expenses, pension, etc., so you’ve got all the information at hand. There are deadlines for submitting your tax return – speak to your accountant if you’re not sure of the dates.
Tax year – the twelve-month period used to calculate tax and keep records in order. Any business activity outside of this time falls into a different tax year. In the UK, the tax year runs from the 6th April to the 5th April…this is a busy time for most businesses as they prepare for the new financial year!
VAT – a tax you pay on the sales of services or goods. The standard rate (currently 20%) is most commonly used.
No question about tax is too taxing for us! If you’ve got any questions or would like to talk to us about tax for your business, please get in touch and we’ll be happy to advise.