ICAEW Principles of Taxation (ICAEW) key terms

The twelve-month period used for UK income tax and capital gains tax, running from 6 April in one year to 5 April in the next. Rates, allowances and thresholds are set for each such period separately.

The twelve-month period used for government finances and for corporation tax, running from 1 April to 31 March. It is named by the calendar year in which it begins, so the fiscal year 2024 runs from 1 April 2024.

A generic term for a twelve-month accounting period chosen by a business, which need not match the calendar year or the tax year. Accounts prepared for such a period are apportioned where tax rules use fixed statutory periods.

The period of trading whose profits are assessed to income tax in a particular tax year. Special rules apply when a business starts, ceases, or changes its accounting date, so the profits taxed may cover more or less than twelve months.

The amount of income an individual may receive in a tax year before income tax becomes payable. It is reduced by one pound for every two pounds of adjusted net income above a set limit, so high earners progressively lose it.

A measure of an individual's income used to test eligibility for allowances and reliefs. It starts with total income and deducts certain reliefs such as trading losses and gross pension contributions, but ignores charitable donations made under gift aid.

The amount of income remaining after allowable deductions and reliefs, on which income tax is actually charged. It is then split into non-savings, savings and dividend components, each taxed at its own rates.

Income such as employment earnings, trading profits, pensions and property rents that is not savings or dividend income. It is taxed first in the income tax computation, so it uses up the lower rate bands before other types of income.

Interest and other returns from bank accounts, building society accounts and certain securities. It is taxed after non-savings income, and a starting rate and a personal savings allowance may apply to it.

An amount of savings income that is taxed at zero per cent for individuals, with the size of the allowance depending on the rate of tax on other income. It is not available to additional rate taxpayers.

A zero rate of tax that can apply to the first slice of savings income where an individual's non-savings income is below a set threshold. The available band shrinks as other income rises.

A fixed amount of dividend income that is taxed at zero per cent each tax year. It uses up part of the dividend rate bands even though no tax is charged on it, and it is separate from the personal allowance.

The rates applied to dividend income above the dividend allowance, which are lower than the equivalent rates on earned income. The rate depends on which income tax band the dividend falls into once other income is taken into account.

Pay as you earn: the system under which employers deduct income tax and national insurance from wages and pay it to the tax authority during the year. It collects tax as income arises rather than through a single annual payment.

A code issued to an employer telling it how much tax-free pay to allow an employee in a pay period. It reflects allowances and reliefs, and may include adjustments for benefits, underpayments or restrictions.

The system under which taxpayers report their income and gains to the tax authority on a return and calculate their own liability. It applies to the self-employed, higher earners and others outside the scope of simple payroll collection.

An advance payment towards the current year's income tax and class 4 national insurance, based on half of the previous year's liability. Two such payments are normally due, with a balancing payment settling the difference.

The final amount due for a tax year after advance payments have been made, paid by the filing deadline of the following year. It also includes any capital gains tax and class 2 national insurance due.

A relief allowing a charity to reclaim basic rate tax on a donation from an individual, while the donor may claim higher or additional rate relief. The donation must be made from the donor's own funds and be recorded by the charity.

Earnings from an office or employment, including salary, wages, bonuses, commissions and the taxable value of benefits. It is taxed on the amount received in the tax year, generally under the payroll system.

A non-cash reward provided to an employee, such as a company car, private medical cover or living accommodation. Its taxable value is calculated under specific rules and is usually collected through the payroll or the tax code.

The profit of a sole trader or partnership calculated under tax rules, starting from accounting profit and adjusted for disallowable expenses and capital allowances. It is assessed on the individual partners or proprietor, not taxed at business level.

Tax deductions that replace depreciation for expenditure on qualifying plant and machinery and certain other assets. They include the annual investment allowance and writing down allowances, and reduce the taxable trading profit.

A generous annual limit of expenditure on most plant and machinery that a business can deduct in full in the year of purchase. It is available to most businesses but not to all, and some asset types are excluded.

A capital allowance that spreads the cost of plant and machinery over several years by applying a fixed percentage to the reducing balance of the pool. It applies to expenditure that does not qualify for the annual investment allowance.

Rents and other receipts from letting land or buildings, taxed on the accruals basis for most landlords. Allowable expenses include repairs, insurance and management costs, and a property allowance may replace detailed accounting.

A tax on the gain made when an asset is sold or otherwise disposed of for more than its cost, subject to reliefs and an annual exempt amount. It is separate from income tax and applies to individuals, trustees and, for some gains, companies.

The amount of a capital gain that is subject to tax after deducting allowable costs and reliefs. It is calculated disposal by disposal and then aggregated for the tax year before the annual exempt amount is applied.

The amount of net chargeable gains an individual may realise in a tax year without paying capital gains tax. Gains above it are taxed at rates that depend on the individual's other income and the type of asset.

A tax charged on the taxable profits of companies, including trading profits, investment income and chargeable gains. It is assessed for accounting periods and paid by the company itself, with rates that may vary by profit level.

The period for which a company prepares accounts and is assessed to corporation tax, normally twelve months or less. A company cannot have an accounting period longer than twelve months for tax purposes.

A mechanism that phases in the main corporation tax rate for companies whose profits fall between the small profits threshold and the upper limit. It reduces the benefit of the lower rate gradually rather than applying a single cliff edge.

A reduced corporation tax rate available to companies whose taxable profits are below a set threshold. Associated companies and the length of the accounting period can reduce the threshold that applies.

A consumption tax charged on supplies of goods and services by taxable businesses, with credit for tax paid on purchases. Businesses collect it from customers and account for the difference to the tax authority, usually quarterly.

The value added tax a business charges on its own taxable sales and supplies. It is recorded on the tax return as a liability, against which recoverable tax on purchases is offset.

The value added tax a business pays on purchases and expenses that relate to its taxable supplies. It can normally be recovered by offsetting it against output tax, subject to rules blocking recovery in some cases.

Charges on earnings and self-employed profits that fund certain state benefits, calculated separately from income tax. Different classes apply to employees, employers and the self-employed, each with its own thresholds and rates.

A tax on the value of a person's estate on death, and on certain lifetime transfers made within a set period before death. A nil rate band and various reliefs reduce the amount chargeable.

The threshold of an estate's value that is charged at zero per cent for inheritance tax. It can be transferred between spouses and may be increased by the residence nil rate band in certain circumstances.

A lifetime gift that becomes exempt from inheritance tax if the donor survives for a set number of years after making it. If the donor dies within that period, the gift is brought into the calculation and taper relief may reduce the tax.