Business and finance terminology can be technical, making it easy to feel overwhelmed by unfamiliar terms. Our accounting and financial terms glossary explains key accounting and tax phrases in simple, accessible language, helping you navigate financial statements and HMRC requirements with ease. Read on to discover what these terms mean and how they could affect your business.
Table of Contents
Accounting Basics
Accounting Period – A defined time span (such as a month, quarter, or financial year) used for financial reporting.
Accounts Payable (AP) – Money your business owes to suppliers or service providers for goods and services already received.
Accounts Receivable (AR) – Money owed to your business by customers who’ve been invoiced but haven’t paid yet.
Accruals – Income or expenses recorded in the accounts when they’re earned or incurred, rather than when cash changes hands.
Amortisation – Similar to depreciation, but for intangible assets such as patents or goodwill.
Balance Sheet – A financial snapshot of a business’s assets, liabilities, and owner’s equity at a specific date.
Cash Flow – The movement of money into and out of a business, showing how easily it can meet short-term obligations.
Depreciation – The gradual reduction in the value of a physical asset over time, reflecting wear and tear or obsolescence.
Fixed Costs – Expenses that stay the same regardless of sales or production levels (e.g. rent).
Overheads – Ongoing business costs that aren’t directly linked to production, such as rent, utilities, and insurance.
Prepayment – An accounting entry that records expenses paid in advance of the period they relate to. It ensures costs and revenues are matched accurately to the correct accounting period.
Variable Costs – Costs that change depending on how much you produce or sell (e.g. raw materials).
Working Capital – The difference between current assets and current liabilities, indicating how much cash is available for day-to-day operations.
Tax Terms & UK Payroll
Allowable Expenses – Business costs you can deduct from your income before calculating your taxable profit.
BADR (Business Assets Disposal Relief) – A Capital Gains Tax relief for individuals selling all or part of their business, allowing qualifying gains to be taxed at a reduced rate.
BIK (Benefit in Kind) – A non-cash benefit provided to an employee or director (such as a company car, private healthcare, or accommodation) that is subject to income tax.
Capital Allowances – Tax relief that allows businesses to offset the cost of certain assets, such as machinery, against taxable profit.
CIS (Construction Industry Scheme) – A UK tax scheme under which contractors deduct money from subcontractors’ payments to cover their tax and National Insurance contributions.
Corporation Tax – A tax paid by limited companies on their taxable profits.
IR35 (Intermediaries Legislation) – Rules that determine whether contractors should be taxed as employees or self-employed for specific contracts.
National Insurance (NI) – Contributions paid by employees, employers, and the self-employed to fund benefits such as the State Pension.
P11, P11D, P45, P60 – Forms used by employers to record employee pay, benefits, and tax information at different stages of employment.
PAYE (Pay As You Earn) – HMRC’s system for collecting income tax and National Insurance directly from employees’ wages.
S455 Tax – A corporation tax charge that applies when a close company lends money to its directors or shareholders and the loan remains outstanding at the end of the accounting period.
Self-Assessment – The process used by individuals and sole traders to report income and calculate tax owed to HMRC.
Tax Year – The official 12-month period for UK tax reporting, running from 6 April to 5 April each year.
VAT (Value Added Tax) – A tax added to most goods and services sold in the UK, collected by businesses on behalf of HMRC.
Business & Financial Management
Bootstrapping – Growing a business using only personal funds or revenue generated by the business itself.
Break-Even Point – The sales level at which total revenue equals total costs, where the business makes neither a profit nor a loss.
Capital Expenditure (CAPEX) – Money spent on assets expected to benefit the business over several years, like vehicles or equipment.
EBITDA – Earnings Before Interest, Tax, Depreciation, and Amortisation – a way of assessing business performance without non-operating costs.
Gross Profit – Profit remaining after subtracting the cost of goods sold from total revenue.
Invoice Factoring – Selling unpaid invoices to a third party for immediate cash, often at a discount.
KPI (Key Performance Indicator) – A measurable target used to assess progress towards business goals.
Margin – The percentage of profit made on a sale after costs are deducted.
Net Profit – The profit left after all expenses, interest, and taxes have been deducted.
Operating Expenditure (OPEX) – The day-to-day running costs of a business, such as wages, utilities, and rent.
Profit and Loss (P&L) – A report showing total income and expenses over a set period, used to calculate profit or loss.
ROI (Return on Investment) – A measure comparing the gain from an investment to its cost, usually shown as a percentage.
Turnover – The total value of a business’s sales during a period, before any expenses.
UK Business Essentials
Companies House – The UK government agency that registers companies and holds official records such as annual accounts and confirmation statements.
Confirmation Statement – A document that UK companies must file annually to confirm that company details are up to date.
Director’s Loan Account (DLA) – A record of money taken from or repaid to the company by its directors.
Director’s Withdrawals – Money taken out of a company by a director that isn’t salary or dividend; must be recorded correctly for tax purposes.
Dividend – A payment from company profits to shareholders, usually after Corporation Tax has been paid.
Equity / Negative Equity – Equity is the ownership value of a business; negative equity occurs when liabilities are greater than assets.
Insolvency – When a business can’t pay its debts on time or its liabilities exceed its assets.
Making Tax Digital (MTD) – HMRC’s digital system requiring businesses to keep and submit tax records electronically.
Rechargeable Expenses – Business costs initially paid by one party and later reimbursed by a client or customer.
Registered Office – The official address of a limited company, used for legal and correspondence purposes.
SIC Code – A numeric code that identifies the main business activity of a company for Companies House and HMRC records.
Personal & Investment Terms
AER (Annual Equivalent Rate) – The rate showing what interest you’d earn on savings over a year, factoring in compounding.
Annuity – A financial product that provides a regular income, typically bought with pension savings.
APR (Annual Percentage Rate) – The yearly cost of borrowing money, including interest and fees.
Capital Gains Tax (CGT) – Tax on the profit made when you sell or dispose of an asset that’s increased in value.
Dividend Allowance – The portion of dividend income you can receive each year without paying tax.
Inheritance Tax (IHT) – Tax charged on an estate (property, money, and possessions) when someone dies.
ISA (Individual Savings Account) – A savings or investment account where interest or returns are tax-free up to annual limits.
Pension Contribution – Payments made by you or your employer into a pension fund to save for retirement.
Present Value – The current worth of a future sum of money, based on a chosen rate of return.
Audit, Compliance & Reporting
Audit – An independent review of financial records to confirm they’re accurate and comply with regulations.
Balance Sheet – A financial statement showing what a business owns (assets), what it owes (liabilities), and the shareholders’ equity at a specific point in time.
Compliance – Following all relevant financial, legal, and regulatory standards.
Full Financial Statements – Comprehensive annual accounts that include a balance sheet, profit and loss statement, cash flow statement, and notes to the accounts, offering a complete view of a company’s finances.
GAAP (Generally Accepted Accounting Principles) – The standard framework accountants use for financial reporting in the UK.
HMRC (His Majesty’s Revenue and Customs) – The UK government department responsible for collecting taxes and enforcing compliance.
IFRS (International Financial Reporting Standards) – A globally recognised set of accounting standards designed to make company financial statements consistent, transparent and comparable across countries.
Profit and Loss (P&L) – A statement summarising revenue, costs, and expenses during a specific period, showing whether a business made a profit or loss.
Reconciliation – Comparing two sets of records (like bank statements and ledgers) to ensure they match.
Registrar Financial Statements – The statutory financial accounts a company must file with Companies House (or an equivalent authority), showing its financial position and performance.
Statement of Change in Equity – A financial report showing how owners’ equity has changed during an accounting period, including profits retained, dividends paid, and any new share issues.
Year-End Accounts – Financial statements prepared at the end of a company’s accounting year.