AAT L4 Business & Personal Tax key terms

A tax charged on the taxable income of individuals, including sole traders and partners, calculated by applying rates and bands to income after allowable reliefs and deductions.

The amount of income an individual can receive free of income tax in a tax year, reduced for those with very high income and withdrawn entirely above the top threshold.

A measure of income used to phase out the personal allowance and to set the high income child benefit charge, calculated by deducting certain reliefs from total income.

The portion of an individual's income that remains after allowable deductions and reliefs and on which income tax is actually charged at the relevant rates and bands.

Interest and similar returns on money, taxed after non-savings income, with a starting rate band and a personal savings allowance available to many individuals.

Distributions of profit paid to shareholders, taxed at dividend rates with an annual dividend allowance and a notional tax credit already reflected in the rates.

A fixed amount of dividend income each tax year on which no dividend tax is payable, though the income still counts towards total income and the basic rate band.

A nil-rate band of savings income available to basic and higher rate taxpayers, set at zero for additional rate taxpayers, so interest within it bears no tax.

A charge clawing back child benefit from a person whose adjusted net income exceeds a set threshold, calculated as a percentage of benefit received and collected through self assessment.

The system under which taxpayers report income and gains to HMRC on a return, calculate their own liability and settle it by stated payment deadlines.

Advance payments towards the following year's income tax and Class 4 national insurance, usually made in two instalments by sole traders and partners within self assessment.

The final amount due on 31 January following the tax year, settling the difference between total liability and the payments on account already made.

The date by which a self assessment return must be submitted, generally 31 January following the tax year for online returns, with fixed penalties for lateness.

A fixed or escalating charge imposed when a return is submitted after the filing deadline, increasing with the length of delay and separate from late payment penalties.

Charged daily on tax paid after its due date, running until the liability is settled and calculated by HMRC without the need for an assessment.

The obligation on businesses and taxpayers to retain supporting documents for a set period, enabling HMRC to verify returns and figures if a compliance check occurs.

An enquiry by HMRC into a return or claim to confirm it is correct, which may lead to adjustments, penalties or, where no change results, closure notice.

An individual carrying on business alone, taxed on trading profits through income tax and Class 2 and Class 4 national insurance rather than through a company.

The profit of a business computed under tax rules, being income less allowable expenses and capital allowances, and then taxed on the individual owner.

A cost incurred wholly and exclusively for the purposes of the trade that may be deducted in computing taxable trading profit, provided it is not capital or specifically disallowed.

Tax relief given for the cost of qualifying capital assets used in a business, claimed instead of depreciation and deducted in arriving at trading profit.

A yearly cap on expenditure on qualifying plant and machinery that can be relieved in full in the period of purchase, subject to limits and anti-avoidance rules.

The annual deduction from the tax written-down value of a pool of assets, given at a set percentage when full relief such as the annual investment allowance is unavailable.

An optional fixed deduction available to individuals with small trading or miscellaneous income, replacing detailed expense claims where total relevant income is below the limit.

The period of account whose profits are assessed in a particular tax year, determined by rules that align a business's accounting date with the tax year.

The period for which a company prepares accounts and which normally forms its chargeable accounting period for corporation tax, generally twelve months or less.

A tax on the taxable profits of companies, including trading profits, investment income and chargeable gains, charged by reference to the company's accounting period.

A mechanism that smooths the transition between the small profits rate and the main corporation tax rate for companies whose profits fall between the two thresholds.

A company under common control with another, whose existence can reduce the profit thresholds available for the small profits rate and marginal relief.

A company controlled by a small number of participators or their associates, subject to special tax rules on loans to participators and certain distributions.

Money or assets taken from a close company by a director or shareholder; beneficial loans can create a taxable benefit and loans to participators can trigger a company charge.

A non-cash reward provided to an employee, such as a company car or private medical cover, which is valued and taxed on the employee and may attract employer national insurance.

Pay as you earn, the system requiring employers to deduct income tax and national insurance from wages and pay it to HMRC, reporting through real time information.

Contributions on employed earnings, comprising a primary charge on the employee and a secondary charge on the employer, collected alongside PAYE.

Contributions charged on the trading profits of the self-employed above a lower limit, assessed through self assessment and payable with income tax.

A tax on the chargeable gains arising when assets are disposed of, calculated as proceeds less allowable costs and reliefs, with an annual exempt amount.

The amount of net chargeable gains an individual can realise in a tax year before capital gains tax becomes payable, with a separate amount for some trusts.

The taxable element of a disposal, found by deducting allowable expenditure and reliefs from disposal proceeds and applying any relevant exemption or relief.

A relief giving a reduced rate of capital gains tax on qualifying gains from disposing of a business or shares in a personal trading company, subject to conditions.

The rules allowing a trading loss to be set against other income or gains of the same or other years, or carried forward against future profits, depending on the claim.

A tax on gains realised on the disposal of assets, charged on individuals and, for companies, replaced by corporation tax on chargeable gains.

A business carried on by two or more persons, which is not itself taxed; instead each partner is taxed on their share of profits through self assessment.

A separate legal entity owned by shareholders and managed by directors, paying corporation tax on its profits and PAYE on salaries it pays.

Arranging affairs within the letter of the law to reduce tax, which may be counteracted by specific anti-avoidance rules or a general abuse principle.

Deliberately concealing income or providing false information to reduce tax, which is unlawful and can lead to criminal prosecution as well as civil penalties.