The ultimate accountancy jargon buster: part 3

Welcome to the last part of our ultimate accountancy jargon buster, where you’ll gain a deeper understanding of some of the common accountancy terms you’ll potentially come across while running your business.

In this final part, we’ll be getting to grips with the difference between tax avoidance and tax evasion (an important distinction!) and finding out what actually defines an SME.  Enjoy!

Registered Office

The official address of an incorporated company or association. The details are on public record so other organisations, such as HMRC and Companies House, can easily get in touch.

Research and Development (R&D)

If a company invests in improving existing products, developing new ones or carrying out work to gain new knowledge and understanding about a particular area, this is known as R&D.  Innovative projects in science and technology qualify for tax relief. Please speak to us if you’re not sure if a project your company is working on would qualify.

Retained Earnings

Retained earnings are the profit a company has after it has paid all its direct costs, indirect costs, taxes, and dividends to shareholders. Some companies choose to invest retained earnings into marketing, new equipment or research and development.

Retained Profit

Another term for retained earnings.

Revenue

This is simply the money generated by carrying out your business activities. It’s sometimes referred to as sales revenue.

Sage

Provide accounting software.

Self-Assessment

Self-Assessment is the process used to inform HMRC about any income on which you may need to pay tax. This includes items such as:

  • Money you take out from your business, if you’re a sole trader
  • Dividends, if you’re a director of a limited company
  • Property
  • Savings interest

Filling out a Self-Assessment tax return can be daunting, especially if you’ve never done one before. It’s why we offer a comprehensive Self-Assessment tax return service, which includes identifying which income you need to declare, preparing your return and ensuring your final tax bill is as low as possible.

Share Capital

This is the total amount of money put into a business in exchange for shares or, to put it another way, the total value of shares issued by a limited company.

Shareholders

Shareholders are people, companies or institutions who own shares in a limited company. The controlling shareholder will be someone who owns more than half of a company’s shares, while a minority one will own fewer than half.

Small and midsize enterprise (SME)

SMEs represent 99% of the business population (5.6 million businesses) and have a turnover in the region of £2.4 trillion.

They are defined by headcount and either turnover or balance sheet total.

Company category Staff headcount Turnover or Balance sheet total
Medium-sized Fewer than 250 Less than €50m Less than €43m
Small Fewer than 50 Less than €10m Less than €10m
Micro Fewer than 10 Less than €2m Less than €2m

Tax Avoidance

This is when a taxpayer uses any legal method to reduce the amount of tax they owe. For example, you could set up an offshore company in a country which has very low tax rates for non-domiciled investors. However, withholding or supressing key information from HMRC on any tax avoidance schemes can be considered a criminal offence.

Tax Code

Allocated by HMRC, your tax code calculates how much tax you should be paying each year out of your salary or pension. For example, if your tax code is 1257L, you can receive £12,750 without it being taxed. This is known as your Personal Allowance. Anything you receive above that will be subject to Income Tax.

Tax Compliance

This simply means an individual or company complies with the tax laws of their given country.

Ensuring you’re always tax complaint is important as otherwise you will face the wrath of the tax man, so if you’re unsure about anything, please get in touch and we’ll ensure everything is above board.

Tax Evasion

This is when a taxpayer avoids paying tax by deliberately committing a crime or allowing illegal activities to take place, for example not declaring business earnings. Penalties vary depending on the seriousness of the tax evasion but can result in prison time. Lester Piggott was famously jailed back in 1987 when he failed to declare income of £3.25m.

Tax Haven

A Tax Haven is a place with very low tax rates for non-residents, which allows them to escape higher taxes in their home country.  Monaco is one of the favourites as it has very favourable personal and corporate tax rules. Other countries with low-to-no taxes include British Virgin Islands, Jersey and the Cayman Islands.

Tax Planning

Nobody wants to pay tax, but while you can’t avoid it completely, you can make sure the amount you pay is as small as possible. This is where tax planning comes in (and is something we can help with). It assesses your financial situation and identifies the best ways of reducing your tax liabilities.

Tax Liability

The amount of tax you owe after all deductions have been made.

Trial Balance

A statement showing the totals of all a company’s debts and credits. It’s used to check the totals in the two columns match each other. If the totals don’t match, then an error has been made. This could be a debit or credit entry has been missed, or an error has happened when copying information across from the General Ledger.

Turnover

The total amount of sales you make over a set period. Some people confuse turnover for profit, but unlike profit, turnover doesn’t include any deductions for expenses.

Variable Cost

Any expenses which change due to the amount you produce or sell. This includes things such as raw materials, utility bills and staffing costs.

Unique Taxpayer Reference (UTR)

You’re given a UTR when you register for Self-Assessment or set up a limited company. It’s used by HMRC to identify you and is used for a number of things such as filing a Self-Assessment tax return, making prepayments towards your tax bill or allowing an accountant to act on your behalf.

VAT

Value Added Tax is a tax added to most products and services sold by VAT registered businesses. Currently, the standard VAT rate is 20%, although the rate businesses charge depends on their goods or services.

Xero

Provide accounting software for small and medium sized businesses. As Xero partners, we are happy to unravel its mysteries by providing training on how to use it most effectively.

Year End

Short for ‘accounting year end’, year end is the end of a business’s accounting year.

Zero-Rated

Some goods and services are zero-rated for VAT which means the customer does not to have to pay any VAT. Zero-rated items include postage stamps, prescription medicines, water services and sanitary products.

Still unsure of the meaning of some accountancy terms?

Hopefully, our three jargon busters have helped equip you with all the accountancy terms you might come across as you run your business.

But if you’re ever unsure of a term, or just want to double-check you’ve understood it right, just get in touch. Accountancy shouldn’t be scary or stressful, which is exactly why we offer jargon-free accountancy services to help take the worry out of managing money.

accountancy jargon part 3

More Posts

Breaking even – checking the numbers

In previous newsfeeds we have described how you can calculate the level of turnover you need to create in order to meet all your costs whether they be fixed costs (rent, rates etc.,) or variable costs (goods you need to buy to convert into goods you sell).

For example, if your fixed costs are £50,000 per annum and your variable costs are 25% of your turnover, the annual turnover you need to breakeven will be £200,000. The formula is:

Annual fixed costs divided by 25 (the gross profit)

Bereavement Support Payment

The amount of Bereavement Support Payment you can claim will depend on your relationship to the person who died and when you make your claim.

Your payments will be paid into your bank, building society or credit union account.

If you were married or in a registered civil partnership with the person who died

If you were receiving Child Benefit when your partner died (or did not get it but were entitled to it), you will get the higher rate.

This is made up of:

a first payment of £3,500;

Tax codes for employees

The P9X form is used to notify employers of the tax codes to use for employees. The latest version of the form has been published and shows the tax codes to use from 6 April 2023. The form states that the basic personal allowance for the tax year starting 6 April 2023 will, as expected, be £12,570 (£12,570 in 2022-23) and this means that the tax code for emergency use will remain at 1257L.

The basic rate limit will be £37,700 (£37,700 in 2022-23) except for those defined as Scottish taxpayers

Properties not let at commercial rates

There are special rules where a property is let at less than a commercial rate or isn’t let on commercial terms. These rules also apply if a property is occupied rent free or at less than a commercial rate, for example, a property is occupied by a family member at a reduced or nil rent.

In these circumstances, HMRC can take the view that unless the landlord charges a full market rent for a property and imposes normal market lease conditions, it is unlikely that the expenses of the property are

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