ICAB CL Principles of Taxation key terms

The total income a taxpayer earns in a year that is legally subject to tax before any deductions are subtracted, including salary, business profits, rent and interest.

The amount left after allowable deductions are subtracted from assessable income; the tax rate is applied to this figure to compute the tax payable.

Expenses or outgoings that the tax law permits a taxpayer to subtract from assessable income, usually because they were incurred in producing that income or are expressly allowed.

Spending on acquiring or improving assets that produce lasting benefit, such as buildings or machinery, which is generally not deductible in full in the year of payment.

Spending on day-to-day running costs that are consumed within a short period, such as rent, wages or repairs, and which is typically deductible in the year incurred.

A deduction spread over several years that lets a business recover the cost of qualifying capital assets, such as plant and machinery, against its taxable profits.

The accounting allocation of an asset's cost over its useful life; tax law often ignores it and substitutes statutory capital allowances instead.

The physical decline in value of tangible assets from use over time; some tax systems grant a specific allowance for it to offset business profits.

The legal status of being treated as a home-country taxpayer, usually determined by physical presence, permanent home or habitual abode, and which drives worldwide tax liability.

The place or activity from which income arises, such as employment performed in a country or property located there; it determines which country may tax the income.

A legal concept linking a person permanently to a particular country, generally acquired at birth and changed only by settling elsewhere with intent to remain.

A system that taxes only income arising within the country's borders, leaving foreign-source income of residents generally outside the charge.

A system that taxes a resident on all income wherever earned, while non-residents are taxed only on income arising inside the country.

A tax structure where the rate rises as the taxable amount increases, so higher earners pay a larger proportion of their income.

A tax that takes a larger share of income from low earners than from high earners, often because it is a flat amount on goods everyone buys.

The rate applied to the next unit of income, showing how much tax is paid on an additional amount earned rather than on the whole income.

Total tax payable divided by total taxable income, expressed as a percentage; it is always lower than or equal to the marginal rate in a progressive system.

A tax levied on a person or company's income, profits or wealth and paid directly to the revenue authority by the taxpayer.

A tax collected by an intermediary, such as a seller, from the final consumer and passed on to the government, for example value added tax or sales tax.

A consumption tax charged at each stage of the supply chain on the value a business adds, with registered businesses recovering input tax already paid.

VAT paid by a registered business on purchases and expenses, which can normally be credited against the output tax it collects.

VAT a registered business charges its customers on sales, which it collects and later remits to the revenue authority after deducting input tax.

Tax deducted at source by a payer, such as an employer or company paying dividends, and remitted to the government on the recipient's behalf.

A system where an employer deducts income tax from wages each pay period and sends it to the revenue authority, spreading payment across the year.

Tax paid during the year before the final assessment, such as quarterly instalments, which is later credited against the total liability.

A system where the taxpayer calculates their own liability and files a return, with the revenue authority checking or auditing selected cases afterwards.

The formal statement a taxpayer files with the revenue authority declaring income, deductions and the resulting tax due for a period.

The formal determination by the revenue authority of the amount of tax a person owes, whether based on a filed return or raised by the authority itself.

The imposition of tax by two countries on the same income of the same taxpayer, which relief provisions or treaties aim to reduce or eliminate.

A treaty between two countries allocating taxing rights over various types of income and providing relief so the same profit is not taxed twice.

A relief that lets a resident subtract tax already paid to a foreign country from the tax due at home on the same income, capped at the domestic tax on it.

Arranging one's affairs within the letter of the law to reduce tax, which may be challenged by anti-avoidance rules where it lacks commercial substance.

Illegally reducing tax by hiding income, falsifying records or making false statements, and which can attract criminal penalties.

A broad statutory provision allowing the revenue authority to disregard or recharacterise transactions whose main purpose is obtaining a tax advantage.

A jurisdiction offering low or zero tax and strong secrecy, often used by taxpayers to shift profits or hide assets from higher-tax countries.

The prices set for transactions between related companies in different countries; tax rules require these to reflect arm's length market terms.

A financial sanction imposed for breaches such as late filing, late payment or understatement of tax, usually calculated as a percentage of the tax involved.

A charge imposed on overdue tax, calculated for the period the amount remains unpaid, separate from any penalty for the underlying default.

A statutory exclusion that removes particular income, persons or transactions from the charge to tax entirely, so no tax arises on them.

A fixed amount of income or gain that is free of tax before the charge begins, such as a personal allowance available to resident individuals.