Tax & accounting glossary
Plain-English definitions of the UK tax and accounting terms you'll meet in TaxOptimiser.
Abridged accounts
Abridged accounts are a shortened version of a small company's accounts in which some balance sheet and profit and loss lines are combined. They need the agreement of all the members, and the option to file them ends on 1 April 2028.
Accounting period
An accounting period is the period a single Company Tax Return covers for Corporation Tax. It usually matches the company's financial year, but it can never be longer than 12 months.
Accounting reference date (ARD)
The accounting reference date is the day and month on which a company's financial year ends each year. Companies House uses it to set the deadline for filing the company's annual accounts.
Accruals
An accrual is a cost the business has incurred by the end of an accounting period but has not yet been invoiced for or paid. It is included in that period's expenses and shown on the balance sheet as a liability.
Agent services account
An agent services account is the HMRC online account that accountants and tax agents use to act for clients under Making Tax Digital. It has its own Government Gateway user ID, separate from the agent's older HMRC online services account.
Annual investment allowance (AIA)
The annual investment allowance (AIA) lets a business deduct the full cost of most plant and machinery from its taxable profits in the year of purchase, up to £1 million a year. It is not available on cars.
Asset lock
The asset lock is the legal restriction that keeps a community interest company's assets and profits for the benefit of the community. They cannot be passed to members or anyone else for less than full market value, except to another asset-locked body.
Asset-locked body
An asset-locked body is an organisation whose own assets are legally protected for community or charitable purposes: a community interest company, a charity, or a registered society with a restriction on the use of its assets.
Assets
Assets are resources owned or controlled by a business or individual that have economic value and are expected to provide future benefit, such as cash, property, equipment, stock or receivables. For accounting purposes, they are typically classified on the balance sheet as either current assets (held short-term) or non-current/fixed assets (held long-term).
Associated companies
Two companies are associated for Corporation Tax if one controls the other or both are controlled by the same person or group of people. The £50,000 and £250,000 rate limits are shared equally between a company and its associated companies.
Audit exemption
Audit exemption lets a qualifying company, usually a small company, a dormant company or a guaranteed subsidiary, file accounts without having them audited. The directors confirm the exemption in a statement on the balance sheet.
Balance Sheet
A balance sheet is a financial statement that shows a business's assets, liabilities and equity at a specific point in time, providing a snapshot of its financial position. In the UK, it forms part of the statutory accounts filed with Companies House and HMRC.
Capital allowances
Capital allowances are the tax relief a business gets for money spent on assets it keeps and uses, such as equipment, machinery and vans. They are deducted from taxable profit in place of the depreciation shown in the accounts.
Chargeable gain
A chargeable gain is the taxable profit a company makes when it sells or otherwise disposes of an asset, such as property or shares, for more than it cost. Companies pay Corporation Tax on chargeable gains, not Capital Gains Tax.
Charitable company
A charitable company is a limited company, almost always limited by guarantee, that has only charitable purposes. It is registered with both Companies House and the Charity Commission and answers to both.
Charitable exemption
Charitable exemption is the relief that takes most of a charity's income and gains out of Corporation Tax, provided they are applied for charitable purposes only. A charitable company or CIO claims it on the CT600E.
Charitable incorporated organisation (CIO)
A charitable incorporated organisation (CIO) is a legal form designed for charities. It is a corporate body with limited liability that is registered only with the Charity Commission, not with Companies House.
Charitable purposes
Charitable purposes are the aims the law recognises as charitable, such as relieving poverty, advancing education or protecting the environment. An organisation can only be a charity if all of its purposes are charitable and are for the public benefit.
Charities SORP
The Charities SORP (Statement of Recommended Practice) sets out how charities must prepare accruals accounts and their trustees' annual report. It applies the accounting standard FRS 102 to charities and adds charity-specific rules such as fund accounting.
Charity
A charity is an organisation set up only for charitable purposes that benefit the public. In England and Wales most charities with income over £5,000 must register with the Charity Commission, and charities get relief from most taxes on income they use for their charitable work.
Charity Commission
The Charity Commission is the regulator and registrar of charities in England and Wales. It decides whether an organisation is a charity, keeps the public register of charities and receives their annual returns and accounts.
Charity trustee
A charity trustee is one of the people who have general control and management of a charity. Trustees are responsible for how it is run and what it spends, and are normally unpaid volunteers.
CIC Regulator
The CIC Regulator is the Office of the Regulator of Community Interest Companies, the public body that decides whether a company can become a CIC and oversees CICs afterwards. It works alongside Companies House.
CIC34 report
The CIC34 is the community interest company report that every CIC must deliver to Companies House each year with its accounts. It explains what the company did for the community, what its directors were paid and whether any assets left the company at less than full value.
Close company
A close company is, broadly, a UK company controlled by five or fewer shareholders, or by any number of shareholders who are also directors. Most owner-managed and family companies are close companies, and special tax rules apply to them.
Community amateur sports club (CASC)
A community amateur sports club (CASC) is a local sports club registered with HMRC under a scheme that gives it tax reliefs similar to a charity's. A CASC is not a charity and is not registered with the Charity Commission.
Community interest company (CIC)
A community interest company (CIC) is a limited company set up to benefit the community and not its owners. It is registered at Companies House, has an asset lock, and reports each year to the CIC Regulator.
Community interest test
The community interest test is the test a company must pass to be a community interest company. It is met if a reasonable person might consider that the company's activities are carried on for the benefit of the community.
Company authentication code
A company authentication code is a six-character code that Companies House issues to each company. It is needed to file information online or through software, including the annual accounts.
Company limited by guarantee
A company limited by guarantee is a company with members and no shareholders. Each member promises to pay a fixed sum, often £1, if the company is wound up. It is the usual form for charities, clubs and most community interest companies.
Confirmation statement
A confirmation statement is the filing a company makes to Companies House at least once a year to confirm that the information held about it on the public register is correct and up to date. It is separate from the annual accounts.
Corporation Tax
Corporation Tax is the tax a UK limited company, and some other organisations such as clubs and societies, pays on its taxable profits. The main rate is 25%, with a 19% small profits rate for profits of £50,000 or less.
CT600
The CT600 is the Company Tax Return form a company files with HMRC for each Corporation Tax accounting period. It is filed online with the company's accounts and tax computation, and is due 12 months after the period ends.
CT600A
The CT600A is the supplementary page to the Company Tax Return for loans a close company has made to its participators, usually an overdrawn director's loan account. It is where the section 455 charge on those loans is declared and where relief is claimed when they are repaid.
CT600B
The CT600B is the supplementary page to the Company Tax Return for controlled foreign companies and hybrid mismatches. It declares the controlled foreign company (CFC) charge, records a foreign permanent establishment exemption election and discloses hybrid and other mismatches.
CT600C
The CT600C is the group and consortium relief supplementary page to the Company Tax Return. A company completes it when it claims another company's losses as group relief, or surrenders its own losses to another company.
CT600D
The CT600D is the insurance supplementary page to the Company Tax Return. It is completed by an insurance company or friendly society with policies or contracts treated as Overseas Life Assurance Business, and carries a single declaration.
CT600E
The CT600E is the supplementary page to the Company Tax Return for charities and community amateur sports clubs. It is where they claim exemption from Corporation Tax and report the income, expenditure and assets behind the claim.
CT600F
The CT600F is the tonnage tax supplementary page to the Company Tax Return. A shipping company within a tonnage tax election uses it to report a notional profit based on the size of each ship, which is taxed in place of the profit its shipping trade actually made.
CT600H
The CT600H is the cross-border royalties supplementary page to the Company Tax Return. It lists royalties a company paid overseas without deducting tax, or deducting it at a reduced rate, because it reasonably believed the recipient was entitled to treaty relief.
CT600I
The CT600I is the supplementary page to the Company Tax Return for a company with a ring fence trade: extracting oil or gas, or holding oil rights, in the UK or on the UK continental shelf. It reports the ring fence profits and works out the supplementary charge on them.
CT600J
The CT600J is the supplementary page to the Company Tax Return on which a company reports the Scheme Reference Numbers of tax avoidance schemes it has used. It belongs to the Disclosure of Tax Avoidance Schemes (DOTAS) rules.
CT600K
The CT600K is the restitution tax supplementary page to the Company Tax Return. It reports restitution interest that HMRC has paid the company and the 45% Corporation Tax charge on it.
CT600L
The CT600L is the research and development supplementary page to the Company Tax Return. It sets out an R&D expenditure credit or payable R&D tax credit and takes it through a fixed sequence of steps until it has paid tax, been carried forward or been paid in cash.
CT600M
The CT600M is the supplementary page to the Company Tax Return for a company claiming the enhanced capital allowances available in the special tax sites of Freeports and Investment Zones.
CT600N
The CT600N is the Residential Property Developer Tax (RPDT) supplementary page to the Company Tax Return. RPDT is a 4% tax on profits from developing UK residential property, above an allowance of £25 million a year shared across a group.
CT600P
The CT600P is the creative industries supplementary page to the Company Tax Return. It is where a company claims the expenditure credits for film, television and video games, and the reliefs for theatre, orchestras and museum and gallery exhibitions.
Depreciation
Depreciation is the accounting charge that spreads the cost of a fixed asset, such as equipment or a vehicle, over the years the business expects to use it. It reduces profit in the accounts but is not deductible for tax.
Director's loan account
A director's loan account is the record of money a director has lent to or borrowed from their company, other than salary, dividends and expense repayments. If the director owes the company money at the year end, extra tax can be due.
Dividend cap
The dividend cap limits how much of its profit a community interest company limited by shares can pay out to its shareholders. The total dividends declared in a year cannot be more than 35% of the profits available for distribution.
Dormant company
A dormant company, for Companies House purposes, is one with no significant accounting transactions during its financial year. It still has to file annual accounts and a confirmation statement, but it can file simpler dormant accounts.
Filleted accounts
Filleted accounts are the version of a small company's accounts filed at Companies House without the profit and loss account and directors' report. The members still receive the full accounts, and HMRC gets them with the Company Tax Return.
Final declaration
The final declaration is the year-end step in Making Tax Digital for Income Tax where you confirm that the information HMRC holds for the tax year is complete and correct. HMRC guidance now calls this submitting your tax return. You do it from your software, and it is due by 31 January.
First accounts
A company's first accounts cover the period from incorporation to its first accounting reference date. A private company must file them within 21 months of incorporation, and a public company within 18 months.
Fixed assets
Fixed assets are assets a business holds to use over the long term and not to sell, such as property, equipment and vehicles. They are shown on the balance sheet separately from current assets.
Flat Rate Scheme
The VAT Flat Rate Scheme lets a small business pay HMRC a fixed percentage of its VAT-inclusive turnover instead of working out the difference between the VAT it charges and the VAT it pays. The percentage depends on the type of business.
FRS 102 Section 1A
FRS 102 Section 1A is the version of the main UK accounting standard that small companies can use. It applies the full accounting rules of FRS 102 but requires far fewer notes.
FRS 105
FRS 105 is the UK financial reporting standard for micro-entities, the smallest companies. It produces a simplified balance sheet and profit and loss account with very few notes.
Full expensing
Full expensing is a capital allowance that lets a company deduct 100% of the cost of new main-rate plant and machinery from its taxable profits in the year of purchase, with no upper limit. It is not available to sole traders or partnerships.
Gift Aid
Gift Aid is the tax relief that lets a charity or community amateur sports club reclaim the basic rate tax a UK taxpayer has already paid on money they donate. It adds 25p to every £1 given.
Government Gateway
Government Gateway is the sign-in service for HMRC's online services. An account has a user ID of up to 12 characters and a password, and is used to file returns, view tax accounts and authorise software.
Independent examination
An independent examination is an external check of a charity's accounts that is lighter and cheaper than an audit. Smaller charities can have one in place of an audit once their income is above the level at which some external scrutiny becomes compulsory.
Input tax
Input tax is the VAT a VAT-registered business pays on the goods and services it buys for the business. It is normally reclaimed by setting it against the output tax charged on sales in the VAT Return.
iXBRL
iXBRL (inline eXtensible Business Reporting Language) is a file format that tags each figure in a set of accounts or a tax computation so that software can read it, while the document still looks normal to a person. HMRC and Companies House require it for software filing.
iXBRL package accounts
iXBRL package accounts are a set of accounts and related documents delivered to Companies House together as a ZIP file, with the accounts tagged in iXBRL by software.
Late filing penalty
A late filing penalty is the automatic civil penalty Companies House charges a company whose accounts arrive after the deadline. For a private company it ranges from £150 to £1,500 and is doubled if the accounts were also late the year before.
Liabilities
Liabilities are the amounts a business owes to others, such as suppliers, lenders and HMRC. They are shown on the balance sheet, split between those due within one year and those due after more than one year.
Making Tax Digital (MTD)
Making Tax Digital (MTD) is HMRC's programme requiring businesses to keep digital records and send their tax information to HMRC using compatible software. It applies to VAT now and to Income Tax in stages from April 2026.
Marginal relief
Marginal relief reduces the Corporation Tax bill of a company whose profits fall between £50,000 and £250,000, so that its rate rises gradually from 19% to 25% rather than jumping straight to the main rate.
Micro-entity
A micro-entity is the smallest size of UK company for accounts purposes: one that meets at least two of turnover up to £1 million, a balance sheet total up to £500,000 and no more than 10 employees. Micro-entities can prepare simpler accounts under FRS 105.
National Insurance
National Insurance is a contribution paid on earnings and self-employed profits by employees, employers and the self-employed. It builds entitlement to the State Pension and some benefits, and is paid in different classes depending on how you work.
Output tax
Output tax is the VAT a VAT-registered business charges on the goods and services it sells. It is reported in box 1 of the VAT Return and paid to HMRC, less the input tax the business can reclaim.
Payment on account
Payments on account are two advance payments towards a Self Assessment tax bill, each normally half of the previous year's bill. They are due on 31 January and 31 July.
Personal Allowance
The Personal Allowance is the amount of income a person can receive each tax year before paying Income Tax. It is £12,570, and it is reduced for people with income over £100,000.
Primary purpose trading
Primary purpose trading is trading a charity carries on as part of delivering its charitable purpose, such as a school charging fees or a theatre charity selling tickets. The profits are exempt from Corporation Tax if they are used for the charity's purposes.
Profit and loss account
The profit and loss account is the statement showing a business's income and expenses over a period, and the profit or loss that results. Under FRS 102 it is also called the income statement.
Public benefit
Public benefit is the legal requirement that a charity's purposes must be beneficial and must benefit the public or a sufficient section of it. Trustees have to report each year on how their charity has met it.
Qualifying income
Qualifying income is the figure HMRC uses to decide whether a person must use Making Tax Digital for Income Tax. It is their total gross income from self-employment and property in a tax year, before any expenses are deducted.
Quarterly update
A quarterly update is the summary of business income and expenses that a sole trader or landlord sends to HMRC every three months under Making Tax Digital for Income Tax. It is sent from software and is not a tax return.
Restricted funds
Restricted funds are money or assets given to a charity for a specific purpose that is narrower than its general objects. The charity can only spend them on that purpose and must account for them separately.
Self Assessment
Self Assessment is the system HMRC uses to collect Income Tax from people whose tax is not all deducted at source, such as the self-employed, landlords and partners. They report their income on a tax return after the tax year ends.
Share capital
Share capital is the total nominal value of the shares a company has issued to its shareholders. It is shown on the balance sheet under capital and reserves, usually as called up share capital.
Small company
A small company is one that meets at least two of turnover up to £15 million, a balance sheet total up to £7.5 million and no more than 50 employees. Small companies can use the small companies regime, including simpler accounts and exemption from audit.
Small trading exemption
The small trading exemption lets a charity make tax-free profits from trading that is not part of its primary purpose, as long as the turnover from that trading stays within an annual limit of between £8,000 and £80,000.
Statement of financial activities (SOFA)
The statement of financial activities (SOFA) is the primary statement in a charity's accounts, used in place of a profit and loss account. It shows all the charity's income and spending for the year, analysed by type of fund.
Strategic report
A strategic report is a narrative report in a company's annual accounts that reviews its business, principal risks and performance. Medium-sized and large companies must prepare one; small companies are exempt.
Tax computation
A tax computation is the working that turns the profit shown in a company's accounts into the profit chargeable to Corporation Tax. It is filed with the CT600 in iXBRL.
Tax year
The tax year is the 12 months from 6 April to the following 5 April, used for Income Tax, National Insurance and Self Assessment. It is written with both years, for example 2026 to 2027.
Trading allowance
The trading allowance is a tax exemption for the first £1,000 of income a person receives each tax year from self-employment or casual work. Income of £1,000 or less does not normally need to be reported.
Trading loss
A trading loss arises when a company's allowable trading expenses and capital allowances are more than its trading income for an accounting period. The loss can be set against other profits, carried back or carried forward to reduce Corporation Tax.
Trading subsidiary
A trading subsidiary is a company owned by a charity that carries on trading the charity cannot do tax-free itself, such as a shop, cafe or events business. It normally donates its profits to the charity, which removes its Corporation Tax bill.
Trial Balance
A trial balance is a bookkeeping report that lists the closing debit and credit balances of every account in the general ledger at a given date, with the two columns expected to total to the same figure. It is used to check the arithmetical accuracy of the double-entry records before preparing the financial statements.
Trustees' annual report
The trustees' annual report is the narrative report that accompanies a charity's accounts each year. It explains what the charity set out to do, what it achieved, how it was governed and its financial position.
Unincorporated association
An unincorporated association is a group of people who have agreed to act together for a shared, non-business purpose, such as a members' club or society. It has no legal identity separate from its members, but it is treated as a company for Corporation Tax.
Unique Taxpayer Reference (UTR)
A Unique Taxpayer Reference (UTR) is the 10-digit number HMRC uses to identify a taxpayer. Individuals get one when they register for Self Assessment, and every company gets its own for Corporation Tax.
Unrestricted funds
Unrestricted funds are the money and assets a charity can spend on any of its charitable purposes, at the trustees' discretion. They include general funds and any designated funds the trustees have set aside.
VAT
VAT (Value Added Tax) is a consumption tax charged on most goods and services supplied in the UK, currently at a standard rate of 20%, with reduced and zero rates applying to certain items. Businesses with taxable turnover above the VAT registration threshold must register with HMRC, charge VAT on their sales, and submit regular VAT returns.
VAT exempt
VAT exempt refers to goods and services on which no VAT is charged and for which the supplier cannot reclaim VAT incurred on related purchases. Businesses making only exempt supplies generally cannot register for VAT.
VAT registration threshold
The VAT registration threshold is the level of taxable turnover above which a business must register for VAT. It is £90,000, measured over any rolling 12-month period.
VAT Return
A VAT Return is a form submitted to HMRC, usually every three months, showing the VAT a business has charged on sales and paid on purchases during that period. It is used to calculate whether the business owes VAT to HMRC or is due a refund.
VAT Reverse Charge
The VAT reverse charge is a mechanism where the customer, rather than the supplier, accounts for the VAT on a transaction directly to HMRC. It commonly applies to certain construction services under the Construction Industry Scheme and to some cross-border supplies of goods and services.
Zero-rated
Zero-rated goods and services are taxable for VAT but charged at 0%. A business selling them charges its customers no VAT yet can still reclaim the VAT on its own costs.