The words accountants use, in plain English

A

Accounting period

The stretch of time a set of accounts covers, usually twelve months ending on the company's year end. Corporation Tax is worked out per accounting period.

Accruals

Costs that belong to a period but have not been billed yet, such as an electricity bill for March that arrives in April. Accruals accounting records income and costs when they are earned or incurred, whichever period the cash moves in.

Agent (HMRC agent)

An accountant or adviser you have authorised to deal with HMRC on your behalf. Authorisation is done online, tax by tax, and can be removed at any time.

Annual accounts

The statutory accounts a limited company must prepare each year and file at Companies House: a balance sheet, a profit and loss account for larger companies, and notes. Small companies can file less detail publicly.

Annual Investment Allowance

A capital allowance that lets a business deduct the full cost of most equipment and machinery from its profit in the year it is bought, up to £1 million a year.

Auto-enrolment

The legal duty on every employer to put eligible staff into a workplace pension and pay into it. Assessed every pay run; overseen by The Pensions Regulator.

B

Balance sheet

A snapshot at one date of what the business owns, what it owes, and what is left for the owners. Assets on one side, liabilities and equity on the other; the two sides balance.

Bank reconciliation

Matching every transaction in the bookkeeping to the bank statement, so the books show the same balance as the bank. The first thing any accountant checks.

Benefit in kind

Something an employee or director gets from the business other than pay, such as a company car or private medical insurance. Taxed through a P11D or the payroll.

Bookkeeping

Recording every sale, purchase, payment and receipt, and categorising them, so the accounts and tax returns can be built from them. The foundation everything else sits on.

C

Capital allowances

The tax version of depreciation. Instead of deducting the cost of equipment over its life as the accounts do, tax law gives set allowances for it, including the Annual Investment Allowance.

Capital Gains Tax

Tax on the profit when you sell or give away something that has gone up in value, such as shares, a second property or a business. Separate from Income Tax.

Cash basis

Recording income when it is received and costs when they are paid, rather than when they are earned or incurred. The default for most sole traders and partnerships for Income Tax.

Cashflow forecast

A forward view of the money coming in and going out, week by week or month by month, so a tight period is seen while there is still time to do something about it.

Confirmation statement

The annual filing at Companies House confirming the company's registered details are correct: officers, shareholders, registered office and people with significant control. Due within 14 days of the end of each review period.

Construction Industry Scheme (CIS)

The rules under which a contractor in construction deducts tax from payments to subcontractors and pays it to HMRC, with a monthly return. Subcontractors have the deductions set against their own tax.

Corporation Tax

The tax a limited company pays on its profits. Two rates apply: a small profits rate on profits up to £50,000, the main rate above £250,000, and marginal relief in between.

Creditors

People and businesses you owe money to: suppliers, HMRC, the bank. Shown as liabilities on the balance sheet.

CT600

The Company Tax Return, filed with HMRC within twelve months of the end of the accounting period, together with the accounts and tax computations.

D

Debtors

Customers who owe you money for invoices you have raised. An asset on the balance sheet, and often where the cash a profitable business is missing has gone.

Depreciation

Spreading the cost of an asset such as a van or a laptop over the years it is used, so each year's accounts carry a fair share of the cost. An accounting figure; tax uses capital allowances instead.

Director's loan account

The running record of money between a director and their company that is not salary, dividends or expenses. If the director owes the company money at the year end, extra tax can follow.

Dividend

A payment to shareholders out of a company's profits after Corporation Tax. Only possible when there are distributable profits, and taxed on the shareholder at dividend rates after the £500 dividend allowance.

Dormant company

A company that has had no significant accounting transactions in the period. It still files a confirmation statement and dormant accounts.

Double-entry bookkeeping

The method behind every set of accounts: each transaction is recorded twice, as a debit in one account and a credit in another, which is why the books balance.

E

Employment Allowance

A reduction in the employer's National Insurance bill for eligible employers, claimed through the payroll. Not available to a company whose only employee is a director.

F

Fixed assets

Things the business owns and uses for more than a year: vehicles, equipment, computers, premises. Recorded on the balance sheet and depreciated.

Flat Rate Scheme

A VAT simplification for smaller businesses: you charge VAT as normal but pay HMRC a fixed percentage of your gross turnover instead of working out VAT on every purchase.

Full Payment Submission (FPS)

The report an employer sends to HMRC on or before every payday under Real Time Information, listing what each employee was paid and the tax and National Insurance deducted.

G

Gross profit

Sales less the direct cost of making those sales, such as materials and direct labour. Before overheads. Gross margin is the same thing as a percentage of sales.

I

IR35 (off-payroll working)

The rules that decide whether a contractor working through their own company is, for tax purposes, really an employee of the client. Inside IR35, the income is taxed like a salary.

L

Limited company

A business that is a separate legal entity from its owners, registered at Companies House, with its own tax (Corporation Tax) and its own filing duties. The owners' liability is limited to what they put in.

Limited liability partnership (LLP)

A partnership registered at Companies House whose members have limited liability. Taxed like a partnership, with each member paying tax on their share of the profit.

M

Making Tax Digital

HMRC's programme requiring records to be kept digitally and returns sent from compatible software. Already in force for VAT; for Income Tax it applies to sole traders and landlords in stages from April 2026, by qualifying income.

Management accounts

Accounts prepared during the year, usually monthly or quarterly, for running the business rather than for filing: profit and loss, balance sheet, cash, and often a comparison with budget.

Margin

Profit as a percentage of sales. Gross margin is after direct costs; net margin is after everything. Two points of margin on a busy year is a large sum of money.

Marginal relief

The reduction in Corporation Tax for a company with profits between £50,000 and £250,000, so the rate rises gradually from the small profits rate to the main rate rather than jumping.

N

National Insurance

Contributions paid by employees, employers and the self-employed alongside Income Tax. Different classes apply to different kinds of income.

Net profit

What is left after every cost, including overheads and, in a company's accounts, after tax. The figure most people mean when they say profit.

O

Overheads

The costs of running the business that do not rise and fall with each sale: rent, insurance, software, most salaries. They are decided once and then paid every month.

P

P11D

The form reporting benefits in kind given to employees and directors in a tax year, due to HMRC by 6 July. Class 1A National Insurance on the benefits is paid by 22 July.

P45

The form an employee receives when they leave a job, showing pay and tax to date, which their next employer uses to set their tax code.

P60

The annual statement of pay and tax deducted that every employee on the payroll at 5 April must receive by 31 May.

Partnership

Two or more people in business together without forming a company. The partnership files its own return and each partner pays tax on their share of the profit through Self Assessment.

PAYE

Pay As You Earn: the system through which employers deduct Income Tax and National Insurance from wages and pay it to HMRC, usually by the 22nd of the following month.

Payment on account

An advance payment towards next year's Self Assessment bill, due on 31 January and 31 July, each usually half of the previous year's tax. Applies when the bill is over £1,000 and mostly not collected at source.

Personal allowance

The amount of income most people can earn each tax year before Income Tax starts, £12,570 at present. It is reduced for income over £100,000.

Professional clearance

The letter a new accountant sends to the old one when a client moves, asking whether there is any reason not to act and requesting the client's records. A normal part of switching.

Profit and loss account

The statement showing income, costs and the resulting profit or loss over a period. Also called the income statement.

R

Real Time Information (RTI)

The requirement to report payroll to HMRC every time employees are paid, through the Full Payment Submission, rather than once a year.

Registered office

The official address of a company, shown on the public register, where legal documents can be served. It need not be where the business trades.

Retained profit

Profit the company has made over its life and not paid out as dividends. It sits in the balance sheet and is what dividends are paid from.

S

Salary sacrifice

An arrangement where an employee gives up part of their salary in exchange for a benefit, most often a pension contribution, saving National Insurance for both employee and employer.

Self Assessment

The system through which individuals who have income not fully taxed at source, including the self-employed, landlords and company directors with dividends, report their income and pay the tax. The online return is due by 31 January.

SIC code

The Standard Industrial Classification code that describes what a company does, chosen at incorporation and confirmed on each confirmation statement.

Sole trader

A person in business on their own account, with no legal separation between them and the business. The simplest structure: register with HMRC, keep records, file a Self Assessment return.

T

Tax code

The code HMRC gives an employer to work out how much tax to deduct from an employee's pay. It reflects the personal allowance and any adjustments.

Tax year

For individuals, 6 April to 5 April. Companies use their own accounting period instead.

Trading allowance

A £1,000 allowance against trading income each tax year. Income below it need not be reported; above it you can deduct the allowance instead of your actual expenses if that gives a better result.

Trial balance

A list of every account in the books with its balance, used to check that debits equal credits before the accounts are prepared.

Turnover

Total sales in a period before any costs are taken off. The figure the VAT registration threshold is measured against.

U

Unique Taxpayer Reference (UTR)

The ten-digit number HMRC gives to each person and company in Self Assessment or Corporation Tax. Needed for every return and for authorising an agent.

V

VAT

Value Added Tax, charged on most goods and services by VAT-registered businesses and paid to HMRC, less the VAT on their own purchases, usually every quarter.

VAT registration threshold

The level of taxable turnover in any rolling twelve months above which a business must register for VAT: £90,000. Registration is due within 30 days of going over it.

W

Working capital

The money tied up in running the business day to day: stock and money owed by customers, less money owed to suppliers. Growth usually needs more of it.

Writing down allowance

The capital allowance that spreads the cost of assets not covered by the Annual Investment Allowance over several years, at a set percentage of the remaining value each year.

Y

Year end

The last day of a company's accounting period. Accounts and the Corporation Tax return are prepared to it and the filing deadlines run from it.