Glossary & Terms

In this A-z of easy-to-understand glossary we aim to explain the meaning of tax terminology. Key in a word or phrase that you'd like to understand more of or scan through our interactive aplhabet below.

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A

Accruals

This refers to the way accounts are prepared to show not just what has happened but what should have happened in a given time period. For instance, if an invoice issued before year-end wasn’t paid until the next financial year it would be included as if it had been. Similarly, bills for expenses like electricity often aren’t received until after year-end but would be included because the energy had been used.

AER

Annual equivalent rate

Accounting period

The length of time for which financial statements are prepared (e.g. month, quarter, year).

Accounts

Financial reports produced to reflect profit of loss and the financial position at the end of a given time period.

Accounts payable

Money due for payment to trade creditors i.e. suppliers of goods or services.

Accounts receivable

Money due from trade debtors i.e. customers.

Aged debtors

People/organisations who have owed money for some time

Amortisation

Process similar to depreciation, usually applied to intangible assets

Audit

An audit is the independent examination and opinion on account figures, usually done on large corporates rather than SMEs.

AWR

agency worker regulations

Assets

Something of value that a business owns/uses. Fixed assets relate to valuable items like equipment and vehicles while current assets refers to things like stock that can be quickly converted into cash. It can also refer to rights to a trademark.

Articles of association

Document setting out the relative duties and relationships of shareholders/directors in a UK Ltd company.

APR

Annual percentage rate

Arbitration

This relates to an independent and impartial third party that considers both sides of a dispute and makes a decision, usually legally binding, to resolve it.

Abnormal losses

Business losses that should have been avoided

B

Business Process Outsourcing (BPO)

Enables companies to reduce costs and increase efficiency

Bought ledger

(see Purchase ledger)

Break even

The point at which gross profit equals total costs

Book value

The value of an asset at its acquisition price, usually the purchase price

Bankrupt

Where a person, or business, has been declared insolvent by the courts and is relived of settling their debts by surrendering any assets to a court-appointed trustee

Balance Sheet

The statement defining what assets, liabilities, and ownership the business has, and where they came from.

BGC

Bank Giro Credit

Budget

The forecast of expected income or expenditure over a specific period of time

Bad Debt

Where a business or credit customer (debtor) is unable to pay the amount due and the money owed has to be written off against profit.

BACS

Bankers automated clearing service, a UK system where money from one bank can be transferred to another

C

Capital

The most common use of this word in accountancy relates to the expenditure used to buy buildings, equipment, vehicles etc rather than revenue expenditure, which is money used to purchase more short term things like stock, or pay wages.

Closing Balance

An account balance at the end of an accounting period.

Companies Act

Legislation governing the establishment and activities of limited liability companies.

Cash Flow

The movement of cash in and out of a business over a particular period.

Capital reserve

An account that sole traders and partnerships (not Ltd companies) can use to place the amount by which the total price they paid for the business is less than the value of the net assets required. They could record the shortfall as negative goodwill.

Capital expenditure (Cap ex)

Spending on acquiring assets like premises, machinery that the business will use over a number of years

Capital gains tax (CGT)

The tax paid on selling an asset for more than its original purchase price.

Compound Interest

A figure calculated by adding the original sum to interest earned from previous periods.

Corporation Tax

Tax payable annually by UK companies on the taxable profits of their business.

Creditor

A person or organisation who is owed money by the business.

Current Asset

An asset that where the worth can easily be converted into cash within the trading cycle. It can also be known as a ‘liquid asset’ and relate to cash in the bank, stock etc.

Credit note

A document issued by the seller to cancel or reverse all or part of an invoice (bill), usually because the customer was sent faulty goods or received inadequate service.

Credit (terms of business)

Where a supplier agrees to allow customers to pay some time after the goods or services have been delivered, typically 30 to 60 days.

Cost of Goods Sold (COGS)

The direct costs incurred as a result of making sales i.e. the materials, labour and production costs.

Cost of Sales

See COGS

Current Liability

A liability e.g. an overdraft that is expected to be settled within the fiscal year.

D

Drawings

Cash or goods taken from the business for the owners’ personal use.

Debit

Derived from the Latin word debere that means ‘to owe’. A debit is a payment made or owed.

Depreciation

Spreading the cost (or value) of a fixed asset against profits over its useful life.

Dividend

The distribution of profits to company shareholders.

Deficit

Where an organisation spends more money in a given period than it receives.

Deferred Taxation

A tax liability that a company owes but doesn’t pay at that point but will pay in the future.

Debtor

A person or organisation owing money to the business.

Deferred Income

Revenue received ahead of the work being done e.g. a deposit paid for a holiday.

E

Expense

Usually running costs like stationery, fuel.

Equity

Relates to all the net assets of a business once its creditors have been paid off.

F

Float

The petty cash amount at the start of each period

Forecast

A projection of future performance and position based on stated assumptions, current data and market trends.

Fixed cost

Costs that stay the same irrespective of how much activity is done e.g. line rental in a phone contract.

Fixed asset

An asset that an enterprise retains rather than converts into cash. Examples include equipment, vehicles, land and buildings.

Financial Statements

Documents presented at the end of accounting periods e.g. profit and loss sheets.

G

Going Concern Basis

The assumption that the business will continue operating for the foreseeable future.

Goodwill

An intangible business asset based on customer contacts or commercial reputation, or even a trademark

Gross

Total amount before making deductions.

Gross margin

Measures business profitability. Calculated by dividing gross profit by sales; it is usually expressed as a percentage

Gross profit

Refers to the difference between sales revenue and the total costs of materials/purchases.

H

HMRC

Her Majesty’s Revenue & Customs

I

IR35

The common name given to the intermediaries legislation introduced to combat tax avoidance.

Invoice (bill)

The document sent to a buyer summarising goods or services supplied and the amount payable.

Infrastructure Enhancement

The proprietary business process outsourcing service from Anderson Group, designed to increase productivity, reduce costs and enhance infrastructures. It is largely unique in that when clients want to reinstate outsourced services back in-house, Anderson Group will facilitate the migration.

Inventory

Stock held for manufacture or resale.

Incomplete records

Refers to any bookkeeping system that doesn’t use full double entry, where figures have to be extrapolated to produce year end accounts.

L

Limited liability partnership (LLP)

A legal partnership providing limited liability to partners in the business, where the liability of each partner is restricted to the amount of capital they agreed to contribute thus leaving their personal assets safe.

Liquidity

The extent of how much cash or items a business has access to which they can readily exchange for cash.

Loss

Selling goods for less than they cost to purchase, or providing a service for less than it costs to run.

Limited liability

A situation where company owners or shareholders are not responsible for all its debts should the business go into liquidation.

Limited Company

A private organisation set up to run a business where the owners are only responsible legally for debts equivalent to the capital they invested.

Leasing

Acquiring the use of assets through rental agreements e.g. fleet vehicles.

Liabilities

Money owed by one business to another.

M

Margin

Usually expressed as a percentage or fraction and relates to the profit from the selling price.

Mark-up

The amount added to cost price to achieve a profit.

Memorandum of association

A legal statement signed by all initial shareholders agreeing to from a company.

Materiality

The idea that something should only be included in financial records if it’s of material interest to a stakeholder i.e. would it change their opinion.

Mediation

A process where an impartial third party helps people/organisations find a mutually acceptable resolution to a dispute

N

NIC

National insurance contributions

Nominal value

The stated value of a security e.g. share, bond when it was issued rather than its market value.

Net worth

The value put on a business/person once their liabilities have been subtracted from their assets

Net profit (or Operating profit)

The amount earned after all administrative and selling costs have been deducted.

Net book value (NBV)

The net value of an asset i.e. its listed value minus depreciation and amortisation.

Net current assets

Current assets minus current liabilities and refers to the resources a business can readily convert to cash, like working capital.

Net

The amount left after all deductions have been made

O

Ordinary shares

The shares paid out to dividends once the preference shareholders have been paid out.

Overarching contract (OAC)

An employment contract where a temporary worker (umbrella worker) becomes an employee of an employment business or umbrella company.

Overheads

The costs associated with running a business e.g. stationery, offices rent, utilities

Opportunity costs

The costs attributed to losing an opportunity to make money i.e. going on a training course when you could have been earning money for your business

Opening balance

The amount in an account when it is opened initially, or the figure brought forward from the previous accounting period.

P

Partnership

Two or more persons trading together with the aim of making a profit.

Pay as you earn (PAYE)

Where income tax is deducted from salaries by employers and sent directly to HMRC.

Production cost

Raw materials, labour and indirect manufacturing costs

Profit

Excess of revenue (income) over business costs.

Prepayment

An amount paid in advance, before it’s received, like rent and insurance. Initially listed as an asset, it is later transferred to expenses in the period in which it occurred (also referred to as prepaid expense).

Personal Services Company (PSC)

Usually a contractor who is a limited company director who owns most, if not all, the company’s shares.

Payroll

The process of paying staff where tax and NIC are deducted from gross salaries

Personal allowance

An amount set by Government annually that states how much you can earn before you’re taxed

Profit and loss (P&L) report

Financial statement presenting revenues, expenses, and profit over a given accounting period. Also called income statement.

Provision

An amount set aside in accounts to cover a potential future liability.

Provision for doubtful debts

An estimated amount set aside for the risk of not being paid by customers, reported as an expense on the P&L account and deducted from the trade receivable (debtors) balance sheet.

Purchase ledger

A record book that keeps track of all invoices, credit notes, discounts and payments made to suppliers.

R

Recruitment process outsourcing (RPO)

Enables recruiters to outsource non-core functions like CV verification and reduce their overheads and improve their efficiency

Remittance advice

The note sent to a supplier, often with an accompanying cheque, to confirm payment of invoice.

Reconciliation

Where accounting entries from one source are matched against another to check they’re the same.

Real time information (RTI)

An improved way of reporting where PAYE submissions can be made in real time to HMRC

Reserves

The profits and losses that have built up since the business began and which haven’t been withdrawn by the owner as income.

Residual value

The amount realized for a fixed asset that has been decommissioned by the business

Rights issue

Where a company can sell new shares so that they can raise capital

Retained earnings

Accumulated profits not distributed to company shareholders but left available to finance investment in assets.

Return on investment (ROI)

While this phrase is widely used as a business and financial performance measure, it actually relates to the profits made from the book value of an asset, liability or activity, minus depreciation.

S

Surplus/deficit

Surplus refers to the positive amount received from trading that can be reinvested to ensure sustainability. Deficit is when trading produces a negative result.

Stock

Can refer to total goods/raw materials held for resale, or may also be used to describe shares in the ownership of a company.

Stakeholders

A term devised to refer to all those with a legitimate interest in receiving financial information about a business because they have a ‘stake’ in it.

SME

small and medium enterprises

Sole trader

An individual trading and operating a business alone.

Sinking fund

Refers to an account where companies set aside money in order to retire bonds, for example

Shareholders

Either individuals or companies that own one or more shares in a company.

Share capital

Name given to the nominal value of cash paid by shareholders when company shares were issued.

Share premium

The figure paid for company shares over and above their nominal value.

SA800

A self assessment partnership tax return showing each partner’s share of profit and loss

T

Tangible fixed assets

Assets with a physical existence like equipment and cash. Used to differentiate it from an intangible fixed asset.

Trading and profit and loss account

A financial document where both gross profit and net profit are calculated

Travel and subsistence (T&S)

Relates to expenses incurred while on business like hotels, meals.

Turnover

Volume of sales or other form of income from business operations.

V

Variable costs

Costs that alter the more you do e.g. telephone calls

VAT

Value added tax

W

Write off

A term relating to removing an asset that has no future benefit from a balance sheet e.g. goodwill

Work-in-progress

Cost of partly completed goods or services, intended for completion, but recorded as an asset at the end of an accounting period. Akin to stock.

Working capital

Calculated as current assets minus current liabilities (see also Net current assets).

Z

Zero-rated

Where the buyer pays no VAT but the seller can reclaim any tax paid, usually on items like newspapers, children’s clothing

Find out more by emailing us at:

enquiries@andersongroup.uk.com

Or call us on:

0333 8000 800
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Find out more by emailing us at:

enquiries@andersongroup.uk.com

Or call us on:

0333 8000 800