Tax Processes for Businesses (UK) glossary

AAT's Code of Professional Ethics

the guidelines that AAT expects its members to follow in order to do the right things and behave in a way that gives others confidence

Fuel cost

= (Distance / [100 × Consumption per 100 mi]) × Cost per gallon

(Distance / [100 × Consumption per 100 mi]) × Cost per gallon

Fuel cost charge

Confidentiality

to act, in accordance with the law, respect the confidentiality of information acquired as a result of professional and business relationships and not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships shall not be used for the personal advantage of the member or third parties.

Integrity

to be straightforward and honest in all professional and business relationships.

Objectivity

to not allow bias, conflict of interest or undue influence of others to override professional or business judgements

Professional behaviour

to comply with relevant laws and regulations and avoid any conduct that discredits the profession

Professional competence and due care.

to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A member shall act diligently and in accordance with applicable technical and professional standards when providing professional services

Advance payments

payments received before the supply of goods or services

Annual accounting scheme

a UK VAT scheme that allows certain businesses to submit one VAT return per year rather than quarterly returns.

Blocked input tax

VAT that cannot be reclaimed, usually because it relates to certain types of expenditure, such as business entertainment

Fuel cost

(Distance / [100 × Consumption per 100 mi]) × Cost per gallon

Cash accounting scheme

a UK VAT scheme that allows certain businesses to prepare their VAT returns on the cash basis rather than the accruals basis.

Continuous supplies

supplies of services provided on an ongoing basis, such as utilities or subscriptions.

Deregistration threshold

a business can apply to deregister for VAT if the value of its taxable supplies falls below the deregistration threse hold

Employee's National Insurance Contributions (NIC)

a UK tax incurred by employees on employment income, deducted at source by their employer.

Employee's pension contributions

contributions made by an employee to their pension

Employer Payment Summary (EPS)

a report sent to HMRC that is used to inform them that no employees were paid in the month or to make non-regular claims and adjustments.

Employer's National Insurance Contributions (NIC)

a UK tax incurred by employers as a result of employing an employee.

Employer's pension contributions

contributions made by an employer to an employee's pension

Exempt supplies

supplies on which VAT is not charged in the UK.

Flat rate scheme

a UK VAT scheme that allows certain businesses to calculate their VAT payable as a fixed percentage of their VAT inclusive turnover.

Fuel scale charge

a fixed charge based on CO2 emissions that can be used by businesses providing fuel for private use in company vehicles rather than keeping detailed records.

Full Payment Submissions (FPS)

a report sent to HMRC containing all employee data relating to their pay, including payments to and deductions for all employees.

Future turnover test

this test applies if a business expects its taxable supplies to exceed the registration threshold within the next 30 days alone. If so, they must register for VAT.

Gross

the net amount and VAT added together. Alternative terms: total, VAT inclusive

Gross pay

the total amount of money earned by an employee before any taxes or deductions.

Historic turnover test

this test requires businesses to monitor their taxable supplies on a rolling 12-month basis. If they exceed the registration threshold at the end of any month, they must register for VAT.

HM Revenue and Customs (HMRC)

the UK Government department responsible for collecting, paying, administering and enforcing taxes.

Income tax

a UK tax charged on most types of income earned by individuals. If an individual receives employment income, this is deducted by their employer at source through the Pay As You Earn (PAYE) system.

Input tax

the amount of VAT that is reclaimable on purchases and other inputs.

Inputs

purchases and other inputs excluding VAT.

Making tax digital (MTD)

a UK Government initiative aiming to implement a fully digital tax system.

Mixed-rated supplies

supplies that include items that are subject to different VAT rates.

Modified invoice

a modified is similar to a full VAT invoice but it shows the VAT inclusive rather than VAT exclusive values.

Net

the amount before any VAT has been added. Alternative term: VAT exclusive.

Net pay

taxable pay minus all statutory and non-statutory deductions. This is the figure that is paid to the employee.

Non-statutory deductions

amounts that employees choose to have withheld from their gross pay, such as payroll giving donations.

Normal scheme.

the scheme that applied when a business has not signed up for any of the special VAT schemes. This usually requires quarterly VAT returns to be prepared on an accruals basis

Output tax

the amount of VAT that is payable on sales and other outputs.

Outputs

sales and other outputs excluding VAT.

Outside the scope of VAT

transactions that are not covered by VAT legislation and therefore are not included in the VAT records, such as wages.

P11D

a tax form issued to both employees and HMRC outlining the cash value of any work-related taxable benefits and expenses over the tax year.

P45

a tax form issued by HMRC but completed by the employer when an employee leaves employment.

P60

a statement issued to an employee outlining the Income Tax and National Insurance Contributions that have been deducted from their pay over the tax year.

Partial exemption

when a business makes a mixture of taxable and exempt supplies.

Partial exemption de minimis amount

: a threshold that allows businesses to reclaim input tax that would otherwise be non-reclaimable due to its association with exempt supplies.

Pay As You Earn (PAYE)

a UK system where employers deduct income tax from employees' wages and pay it directly to the government.

Payslip

a document issued to an employee each payday, showing their gross pay, deductions and net pay

Postponed import VAT

a VAT return adjustment that involves declaring and recovering import VAT on the same VAT return, rather than having to pay it upfront when the goods are imported and then recovering it later

Prompt payment discount (PPD)

a discount offered to customers for paying invoices within an agreed shorter time period than the standard payment terms

Real Time Information (RTI)

a system introduced by HMRC to improve the operation of PAYE. Under RTI, employers must submit information about tax and other deductions to HMRC every time they pay their employees, rather than waiting until the end of the tax year.

Reduced rated supplies

taxable supplies that are subject to the reduced VAT rate, which is currently 5% in the UK.

Registration threshold

a business is required to register for VAT if the value of its taxable supplies exceeds the registration threshold.

Sale or return basis

an arrangement that allows customers to return goods to a supplier if they do not sell

Simplified invoice

a simplified VAT invoice can be issued if the sale is for less than £250 (including VAT) and if the customer agrees. A simplified VAT invoice contains less detail that a full VAT invoice.

Standard rated supplies

taxable supplies that are subject to the standard VAT rate, which is currently 20% in the UK.

Statutory deductions

amounts that employers are required by law to withhold from employees' gross pay, including PAYE, NICs, pension contributions and student loan repayments.

Student loan repayments

in the UK, student loans are primarily used to help cover the costs associated with higher education. Repayments are deducted from gross pay once the employee starts earning above a certain income threshold

Taxable gross pay

gross pay minus any tax-free elements, such as payroll giving donations and employee pension contributions. This is the figure on which the employee will pay income tax.

Taxable person

any individual or business that is, or is required to be, registered for VAT.

Taxable supplies

any supply made in the UK which is not exempt from VAT. This includes standard-rated, reducedrated, and zero-rated supplies.

Zero rated supplies

taxable supplies that are subject to a 0% VAT rate in the UK.