Glossary

 

Buy To Let

Refers to the purchase of property (usually residential) with the intention of renting it out

Cash accounting

Income is not recognised until received (rather than when earned) and expenses are not recognised until paid (rather than incurred)

Cash accounting scheme – VAT

Vat is accounted for at the point of payment rather than when the transaction is created. So vat on sales invoices is accounted for at the time your customer pays you and vat on supplies is accounted for at the time you pay your supplier. More detail can be found at http://www.hmrc.gov.uk/vat/start/schemes/cash.htm

CEST – Check Employment Status for Tax

The HMRC tool for assessing employment status https://www.gov.uk/guidance/check-employment-status-for-tax

CIS

The construction industry scheme. It applies mainly to contractors and subcontractors involved usually in mainstream construction activities. As a contractor under CIS you will be obliged to submit monthly returns to HMRC and also make appropriate CIS deductions when paying your subcontractors. As a subcontractor you are obliged to register under the scheme and appropriate deductions will be made by your client on any payments for work done. More detail can be found at http://www.hmrc.gov.uk/cis/intro/whatis-cis.htm

Dividends

Distributions of a company’s profits to the shareholders of the company.

Employment Status

This refers to the nature of the relationship between a worker and his/her provider of work. Is the worker operating as business in its own right or is the worker to all intents and purposes an employee?

Flat rate scheme

Introduced to make accounting for VAT simpler for smaller businesses. You pay vat as a fixed percentage of your gross sales (inclusive of vat). The actual percentage depends on which sector your business activities fall into. More information can be found on the HMRC website here http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm

Illegal dividends

Payments to shareholders where the intention is to pay dividends, but the correct procedures have not been followed, eg there has been no account taken of the profits available for the dividend, or indeed there are not sufficient funds for a dividend payment. See our guide for more information

IR35

This refers to the intermediaries legislation which was introduced on 6^th April 2000. The details of the then proposed legislation were first published in the press release numbered IR35 and the name has stuck ever since. The aim of the legislation is to seek out “disguised employees” who are operating as limited companies to avoid paying tax and national insurance. It is not intended to capture genuine businesses, although it can provide uncertainty for smaller limited companies. Please see our guide for more information.

Limited Company

Usually a vehicle for which a business may trade, although limited companies can exist in a dormant state. The owners/directors, acting in the best interests of the limited company, are usually protected by limited liability in that they are not personally liable for the company debts as the company exists as a legal entity in its own right. See our guide on directors responsibilities for more information.

Limited Company Contractor

An individual who offers their services via a Limited Company

Managed Service Companies (MSC)

An MSC is a form of company through which workers provide their services to end clients. The definition in the legislation covers both composites (umbrella) and managed personal service companies. Basically the worker does not exercise control over the company and a scheme provider promotes the use of these companies. Workers caught in an MSC must have PAYE and national insurance contributions deducted from all payments received from the company. In addition where the PAYE and NICs debts of an MSC cannot be recovered from the company HMRC may transfer the debt personally to either the director, the MSC provider or other third parties.

Management accounts

Information about the performance of a business compiled usually by a suitably qualified accountant to assist management in achieving the objectives of an organisation. Information will vary from business to business but could include a detailed profit and loss account, analysis of budget variances, cash flow information, sales and overheads analysis and break even points.

MTD

Making tax digital refers to the government legislation regarding the digitalisation of the tax system. It includes how records should be kept in a digital form and how filings need to be made using appropriate software. Read our guide for more information.

OFTS

The Office For Tax Simplification set up by the government in July 2010 with the purpose of advising the government on how to simplify the tax system.

Off Payroll Working

Refers to individuals who are operating via a Limited Company but who are deemed to be an employee of the end client. Also known as ” being caught by IR35″. Please see our guide for more information.

PSC

Person of significant control who must be registered as such with Companies House.

PSC is also used to refer to a personal service company which is company employing only one person, they are therefore offering their services personally.

RTI

Real Time Information system was introduced from April 2013 for most employers. Returns of payments to employees must be filed with HMRC on or before any payments are made. This is the biggest change to the PAYE system since it was first introduced and is intended to help with the administration of the new universal credit.

Self Assessment

Usually taken to mean the system of reporting a tax payers income via a tax return. The burden is on the tax payer themselves to ensure they pay the right amount of taxes due to HMRC.

Take home pay

The amount of money you end up in your pocket after all required taxes have been settled

Tax Credits

A form of benefit payments from the government and not a form of tax relief as the name may suggest. There are different types of tax credits available, the main ones being child tax credit and working tax credits and the amounts payable depend on a whole host of factors such as the number of children you have and how many hours you work. See the link below for more information http://www.hmrc.gov.uk/taxcredits/start/who-qualifies/what-are-taxcredits.htm#2

Tax year

Defined as running from 6^th April one year to 5^th April the following year. So the tax year 2020/21 is defined as the period 6^th April 2020 to 5^th April 2021 inclusive.