UK Accounting Glossary

Annual accounts are the financial statements your company must file with Companies House each year, showing your financial position.

Your accounting period is the 12-month timeframe your company uses for financial reporting and tax calculations.

Accounts receivable is money owed to your company by customers who haven't paid their invoices yet. Also called debtors or trade debtors.

Accounts payable is money your company owes to suppliers and others. Also called creditors or trade creditors.

Amortisation is like depreciation but for intangible assets (software, patents, goodwill). It spreads the cost over the asset's useful life.

The annual exempt amount is the amount of capital gains you can make each year before paying CGT.

Accruals are expenses you've incurred but haven't been invoiced for yet. Recording them ensures accurate profit calculation.

An audit is an independent examination of your company's accounts to verify they give a true and fair view. Small companies are usually exempt.

An angel investor is a high-net-worth individual who invests their own money into early-stage companies, typically in exchange for equity. UK angel investors frequently invest through SEIS and EIS to benefit from significant income tax relief, CGT exemption, and loss relief.

A Benefit in Kind is a non-cash perk from your employer (like a company car or health insurance) that's taxed as if it were salary.

Business Asset Disposal Relief (formerly Entrepreneurs' Relief) reduces Capital Gains Tax to 10% when you sell your business or shares.

A balance sheet shows what your company owns (assets), what it owes (liabilities), and the difference (equity) at a specific point in time.

Bad debt is money owed to you that you can't collect - typically when a customer doesn't pay and you write off the invoice.

Corporation Tax is the tax UK limited companies pay on their profits. It's like income tax, but for businesses instead of people.

A Confirmation Statement (formerly Annual Return) is a yearly filing to Companies House confirming your company details are up to date.

Capital allowances let you deduct the cost of business assets (equipment, vehicles, machinery) from your profits before calculating tax.

CT600 is the Corporation Tax return form companies submit to HMRC, declaring profits and calculating tax owed.

Cash flow is the movement of money in and out of your business. Positive cash flow means more money coming in than going out.

CGT is the tax you pay on profits from selling assets that have increased in value - like property, shares, or your business.

A credit note is issued to reduce or cancel an invoice - used for returns, overcharges, or cancellations.

A company secretary is an officer responsible for ensuring the company complies with legal and administrative requirements. Optional for private companies.

A dividend is a payment a company makes to its shareholders from its profits. For director-shareholders, it's a tax-efficient way to extract money from your company.

A Director's Loan Account tracks money you (as director) borrow from or lend to your company. Borrowing from the company has tax implications.

Depreciation is the accounting method of spreading the cost of a long-term asset over its useful life. It reduces your profit each year.

The dividend allowance is the amount of dividend income you can receive tax-free each year.

A director is a person responsible for running a company and making decisions on its behalf. They have legal duties to the company.

A dormant company is one that has no significant accounting transactions during the year. It still exists but isn't actively trading.

Employer's NI is the National Insurance contribution employers must pay on top of employee wages - an additional employment cost.

Employment Allowance reduces your employer's NI bill by up to £10,500 per year (2025/26). Most small employers qualify.

EIS is a UK government scheme that offers investors 30% income tax relief, CGT deferral, CGT exemption after 3 years, and loss relief when they invest in qualifying companies. Companies can raise up to £5 million per year under EIS.

The UK tax year runs from 6 April to 5 April the following year. All personal taxes (Income Tax, CGT) are calculated on this basis.

Furlough is when employees are kept on payroll but aren't working, often during temporary business closures. The CJRS scheme during COVID covered furlough costs.

Gross profit is your revenue minus the direct costs of producing your goods or services (cost of sales). It's calculated before operating expenses.

Goodwill is the value of a business above its net assets - representing things like reputation, customer relationships, and brand value.

IR35 is tax legislation that targets 'disguised employment' - contractors who work like employees but operate through their own limited company to pay less tax.

Income Tax is the tax paid on most types of income - salary, dividends, rental income, self-employment profits.

Input VAT is the VAT you pay on business purchases. You can usually reclaim this from HMRC on your VAT return.

An invoice is a document requesting payment for goods or services. VAT invoices must contain specific information for VAT-registered businesses.

A knowledge-intensive company (KIC) is a company that meets specific criteria around research and development spending and skilled workforce, qualifying it for enhanced EIS limits: up to £10 million per year (vs £5m standard), £20 million lifetime (vs £12m), and £2 million per investor per year (vs £1m).

A limited company is a business structure that's legally separate from its owners. Your personal assets are protected if the business fails.

An LLP is a partnership where the partners have limited liability. Common for professional services firms like accountants and lawyers.

Making Tax Digital is HMRC's initiative requiring businesses to keep digital records and submit tax information using compatible software.

National Insurance (NI) is a tax on earnings that funds state benefits like the State Pension and NHS. Both employees and employers pay it.

Net profit is what remains after deducting ALL expenses from revenue - including operating costs, interest, and taxes. It's your 'bottom line'.

Output VAT is the VAT you charge customers on your sales. You collect it from customers and pay it to HMRC.

PAYE is the system employers use to deduct Income Tax and National Insurance from employee wages before paying them.

Profit is what's left after deducting all business expenses from your turnover. Corporation Tax is calculated on profit, not turnover.

The Personal Allowance is the amount of income you can earn each year before paying Income Tax.

A P&L statement (also called income statement) shows your company's revenues, costs, and profits over a period of time.

A P60 is an annual summary of your earnings and tax paid from a job, given to you by your employer after the tax year ends.

A P45 is a form you get when you leave a job, showing your earnings and tax paid so far in the tax year.

A P11D is a form employers use to report benefits and expenses provided to employees that aren't included in payroll.

Payments on account are advance payments towards your next year's tax bill, each worth 50% of your previous year's Self Assessment.

Prepayments are expenses you've paid in advance for something you'll receive in the future. They're assets until the benefit is received.

Patent Box is a tax relief that allows companies to apply a lower 10% Corporation Tax rate to profits from patented inventions.

The PSC (Persons with Significant Control) register lists individuals who have significant control over a company - typically those with 25%+ shares or voting rights.

A qualifying trade is a trade that is eligible for SEIS and EIS tax relief. The legislation works on an exclusion basis: most trades qualify unless they are on the list of specifically excluded activities such as property development, financial services, and legal or accountancy services.

Retained profit is the money your company keeps after paying all expenses, taxes, and dividends. It's the company's accumulated savings.

Your registered office is the official address of your company, filed with Companies House. All official correspondence goes here.

R&D tax credits are a UK tax relief for companies that spend money on research and development to advance science or technology.

Self Assessment is the system HMRC uses to collect Income Tax from people who don't have all their tax deducted at source (via PAYE).

A SIC (Standard Industrial Classification) code is a 5-digit number describing your company's main business activity, filed with Companies House.

A sole trader is the simplest business structure - you and your business are legally the same. You keep all profits but have unlimited personal liability.

A shareholder is someone who owns shares in a company. They're entitled to dividends and have voting rights on company decisions.

Share capital is the money invested in a company by shareholders in exchange for shares. It represents the initial and subsequent investments.

Strike off is the process of removing a company from the Companies House register, effectively closing it down.

SSP is the minimum amount employers must pay employees who are off sick for 4 or more consecutive days.

Statutory registers are legal records every UK company must maintain, including registers of members, directors, and persons with significant control.

SEIS is a UK government scheme that offers investors 50% income tax relief, CGT exemption, and loss relief when they invest in qualifying early-stage companies. Companies can raise up to £250,000 under SEIS.

Advance assurance is a confirmation from HMRC that a company should meet the conditions for SEIS or EIS, based on the information provided. It gives investors confidence that their investment will qualify for tax relief before they commit their money.

An SEIS3 or EIS3 compliance certificate is a document issued by HMRC to individual investors confirming that the shares they purchased qualify for SEIS or EIS tax relief. Investors need this certificate to claim income tax relief on their Self Assessment return.

Share premium is the amount paid by investors for shares above their nominal (par) value. It is recorded in a separate share premium account on the balance sheet and has legal restrictions on how it can be used.

Turnover is your total business income before deducting any costs or expenses. It's also called revenue or gross income.

Your tax code tells your employer how much tax-free income you can have before they start deducting tax from your pay.

Trivial benefits are small perks (under £50) that employers can provide tax-free, without reporting to HMRC.

An umbrella company employs contractors, handling their payroll and admin. The contractor works for clients but is technically employed by the umbrella.

VAT is a tax added to most goods and services sold in the UK. Businesses collect it from customers and pay it to HMRC, minus any VAT they've paid on business purchases.

The VAT threshold is the annual turnover level above which you must register for VAT. Below this, VAT registration is optional.

The Flat Rate Scheme is a simplified VAT scheme where you pay a fixed percentage of your turnover to HMRC, instead of calculating VAT on each transaction.

A VAT return is a regular submission to HMRC showing the VAT you've charged (output VAT) and paid (input VAT), with the difference paid or reclaimed.

Working capital is current assets minus current liabilities. It's the money available for day-to-day operations.