Common Tax Terms Explained
There are few certainties in life besides death and taxes. While this mantra is slightly depressing, the fact of the matter is that each of us is personally responsible for providing the correct information to HMRC at the end of the tax year. This is why it is obviously important to appreciate some of the most common tax terms as well as how they might relate to your obligations. Let us break this article down into a series of digestible sections in order to take any guesswork out of the equation.
These are charges that need to be paid to an accountant for services rendered. However, they can be deducted from any taxable profits during the filing process.
In reference to businesses, accruals represent any payments that are due but have not yet been received. These will need to be taken into account when calculating expenses as well as profits.
The base rate is the percentage of interest deemed appropriate by the Bank of England. It is calculated each month and it will be used to determine the annual interest rates for taxation purposes.
Taxable Employment Benefits
These benefits are a type of asset provided by an employer in addition to a base salary. Common examples include accommodation when traveling, a bespoke insurance package or a company car. Benefits need to be included within a self-assessment form at the end of every tax year.
Please note that business income is considered to represent any form in income that is considered to be taxable by HMRC. Examples include (but are not limited to) sales and associated fees, capital gains and certain types of business investments.
Deductions represent an important portion of the taxation process within the United Kingdom. Deductions can be claimed to reduce the amount of income earned during a given tax year. Thus, they are utilised to offset your tax liability (how much you are required to pay).
As the name suggests, this term represents any income that has resulted from investments. Common examples include savings-related interest payments, dividends, held securities, and gains associated with some life insurance policies.
Non-Savings income is any type of income derived from a source other than a savings account. Some conditions which fall under this category include property profits, self-employment, full-time wages, and holding shares in a specific asset.
There are times when specific loan schemes can be utilised as a form of tax relief. These are known as qualified loans. A handful of applicable scenarios include loans for purchasing business-related machinery, those associated with a land purchase, loans employed to purchase interest in a partnership scheme, and loans leveraged to pay any pertinent inheritance tax.
Please note that these are only a handful of common tax terms. It is always wise to speak with a business advisor to learn more about how to settle your books at the end of a financial year.