Tax Glossary: Key Terms Explained

A – D

Adjusted Net Income: Your total taxable income minus certain deductions (pension contributions, Gift Aid). Used to determine the Personal Allowance taper and HICBC.
Annual Exempt Amount: The amount of capital gains you can make tax-free each year (£3,000 in 2026/27).
Balancing Payment: The final payment due on 31 January after Self Assessment, covering any tax not already paid through PAYE or payments on account.
Basic Rate: The standard 20% Income Tax rate on taxable income between £12,571 and £50,270 (2026/27).^[1]
Capital Gains Tax (CGT): Tax on the profit when you sell or dispose of an asset that has increased in value.
Cash Basis: An accounting method where income and expenses are recorded when money actually changes hands.
Class 2 NI: Flat-rate National Insurance paid by the self-employed (£3.65/week in 2026/27).
Class 4 NI: Percentage-based National Insurance on self-employment profits.

E – K

EOPS (End of Period Statement): Under MTD, the confirmation that your figures for a business are final for the year.
Fiscal Year: Same as the tax year: 6 April to 5 April.
Government Gateway: HMRC’s online sign-in system for accessing tax services.
HMRC: His Majesty’s Revenue & Customs — the UK government department responsible for collecting taxes.
Higher Rate: The 40% Income Tax rate on taxable income between £50,271 and £125,140.^[1]

L – P

MTD (Making Tax Digital): HMRC’s programme requiring digital record-keeping and quarterly reporting.^[3]
NI (National Insurance): Contributions that fund state benefits and the State Pension.
P45: Document from your employer when you leave a job, showing your pay and tax for the year.
P60: End-of-year certificate from your employer showing total pay and tax deducted.
PAYE (Pay As You Earn): The system where employers deduct tax and NI from your wages before paying you.
Payments on Account: Advance payments towards your next year’s tax bill, each equal to 50% of your previous year’s Self Assessment liability.^[2]
Personal Allowance: The amount you can earn tax-free (£12,570 in 2026/27).^[1]

Q – Z

SA100: The main Self Assessment tax return form.
SA103: Self-employment supplementary page of the Self Assessment return.
SA105: UK property income supplementary page of the Self Assessment return.
Self Assessment: The system for reporting income and paying tax that isn’t collected through PAYE.^[2]
Tax Code: A code (e.g. 1257L) that tells your employer how much tax-free income to give you before deducting tax.
Tax Year: The period from 6 April to 5 April the following year.
UTR (Unique Taxpayer Reference): Your 10-digit Self Assessment reference number from HMRC.

Frequently Asked Questions

What does UTR mean?

UTR stands for Unique Taxpayer Reference. It is a 10-digit number issued by HMRC when you register for Self Assessment, used to identify your tax records.

What is the difference between PAYE and Self Assessment?

PAYE (Pay As You Earn) is where your employer deducts tax and NI from your wages before paying you. Self Assessment is the system for reporting and paying tax on income not collected through PAYE, such as self-employment or rental income.

What does MTD stand for?

MTD stands for Making Tax Digital, HMRC’s programme requiring digital record-keeping and quarterly reporting for self-employed individuals and landlords above certain income thresholds.

What is the difference between cash basis and accruals accounting?

Cash basis records income and expenses when money actually changes hands. Accruals accounting records them when they are earned or incurred, regardless of when payment is received or made.

Sources

Income Tax — GOV.UK
Self Assessment tax returns — GOV.UK
Making Tax Digital for Income Tax — GOV.UK
Tax terminology — GOV.UK