Tax Glossary

Not sure of your basic rate from your capital gain? Then this section is just right for you. We've pulled together a long list of words and phrases that you may need some help with. Click on the each word to see a plain English explanation.

B: Basic rate, Benefit in kind, Benefits

C: Claim, CGT, Company Car, Council tax

D: Dividend, Domicile

E: Employment, Employer, Employee, Expenses

F: Foreign income

G: Gifts

H: Higher rate, HMRC

I:   Income, Income tax

N: National Insurance

P: PAYE

Basic rate
This is a tax code that people are often put on incorrectly. It implies that an individual is not entitled to any personal allowance and as such your employer will just deduct tax from you at the basic rate (currently 20%) without giving you tax allowances for that period. If this is the case for you then you may be due a tax refund.
Benefit in kind
As the name suggests these are benefits paid by your employer instead of giving you money. The most common forms of benefits In kind are company cars and private medical insurance. HMRC gives these benefits a monetary value and adjusts your tax code accordingly. The net effect is that you pay tax on these benefits as if they were normal wages.
Benefits
State benefits are provided by the government to people who are unable to work for a particular reason. The main benefits include incapacity benefit, Jobseekers allowance and state pensions. Most benefits provided by the state are taxable income as if they were earnings.
Claim
In terms of tax a claim is something that you submit to HMRC to ask for some money back from them. It can be a claim for expenses or a tax refund claim.
CGT
Capital Gains Tax is payable when you dispose of a capital asset. Examples of capital assets are; Land & buildings, Business goodwill or shares & Securities. This kind of transaction is treated totally separate to that of you normal everyday income. You are given a separate CGT allowance each year and there are certain items such as cars and you own home that are exempt from this tax.
Company car
A vehicle provided by your employer for use in your job. A company car is an example of a benefit in kind on which you must pay tax.
Council tax
This is a tax paid by anyone who lives in a property in the UK. We pay council tax to the local council. It covers services that they provide for us such as waste collection and the police force.
Dividend
A dividend is a payment made by a company to its shareholders. It’s a distribution of the company’s profits for that period
Domicile
We all have a domicile it is the country that we are considered to be from. Most domicile issues are decided by the place of birth of our fathers.
Employment, employee, employer
When you work for someone under the PAYE scheme you are said to be employed by that person/company. You are there employee and they are your employer.
Expenses
This relates to a payment you have made in the pursuit of your employment or self employment. If you are employed then usually your employer will repay you for any expenses you have incurred whilst working. When you are self-employed your expenses are offset against your income to leave you with a profit that you are then taxed upon
Foreign income
Income earned from a country other than the UK. This income can take many forms; employment earnings, interest from foreign banks or dividends from companies based abroad. If you fill in a tax return then you need to complete the section for foreign income with details of these earnings.
Gifts
A gift is an asset or cash given by one person to another. There are a couple of things to watch out for when giving gifts:Capital gains tax (CGT), if the asset given is liable for capital gains tax then the person giving the gift may have to make HMRC aware of it and pay any tax that may be due. A gift is treated as being sold at market value for CGT purposes. Inheritance tax (IHT), any gift would remain in the estate of the person making the gift for up to seven years, this is to stop people stripping their estate for IHT purposes before they die
Higher rate tax
The top tier of tax payable in the UK. This is currently set at 40%. Higher rate tax is paid on all income after £35,000. a person paying this tax is often know as a higher rate taxpayer
HMRC, Her Majestey’s Revenue & Customs
The new name for the combined government departments of Inland Revenue and Customs & Excise. They deal with all matters related to the administration and collection of indirect and direct tax and VAT issues.
Income
Income is used to describe the amount of earnings a self employed person has before the deduction of any expenses. It is also known as turnover.
Income tax
Income tax is the name given to the type of tax we pay on our earnings. Each individual is given an income tax personal allowance which is like a tax free sum they are allowed to earn each year. We are then taxed on any income over this amount.
National Insurance
We pay national insurance when we work to save up benefits we may need when we can no longer work. This could be if we are sick or when we reach retirement age. There are many different types of national insurance depending on how much you earn and whether you are employed or self employed.
PAYE
PAYE is the tax system in the UK that most of us are dealt under. Your employers are responsible for deducting income tax and national insurance contributions from your wages before they pay you. They then pay these deductions over to HMRC.
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