Getting your head around tax jargon: 10 common terms explained
Catherine Alexander
Partner at GDA Financial Partners
Financial services is quite a complex area, particularly when it comes to taxation. There are many terms that can get you scratching your head and losing confidence in managing your money. Here we look at 10 common terms used when dealing with your taxes and explain what they mean.
HMRC
HMRC stands for His Majesty’s Revenue & Customs, the government department responsible for collecting all taxes and assessing how much tax you need to pay. It issues your tax code, which you’ll need to file your tax return.
PAYE
Stands for Pay as you Earn. It’s the normal tax scheme for employees where your employer deducts tax and National Insurance from your wages before paying you.
NI
Your national insurance number makes sure your national insurance contributions and tax are recorded against your name.
Self-Assessment
Self Assessment is a system HMRC uses to collect Income Tax in the UK. Tax is usually deducted automatically from wages, pensions and savings. People and businesses with other income must report it in a self-assessment tax return to HMRC so that they can work out the tax due. A common misconception is that it is just for self-employed people. Even if you are employed and paying tax at source (PAYE) there are other circumstances under which you may need to file a self assessment tax return, for example, if you receive rental income from property.
UTR
A Unique Taxpayer Reference (UTR) number is a 10-digit number that is unique to either you or your company. It identifies you personally with HMRC for all things related to your personal tax obligations.
Tax Year
The tax year starts on 6th April every year and ends on 5th April the following year.
Gross Income
The amount you earn before any deductions (e.g. tax, National Insurance) are made.
FRE
Flat rate expenses, are a kind of tax relief for employees based on your work-related expenses. They are called flat rate expenses because you claim a flat rate of tax relief set by the government instead of the individual costs. The Flat Rate Expenses scheme makes it easy to claim tax relief if you’ve had to use your own money for travel, clothing, tools or other things that you must buy for your job.
At Source
When tax is taken out of your income before you are paid. This usually applies to PAYE (employed) or Self Employed people who work under the Construction Industry Scheme (CIS).
Personal Allowance
The amount you can earn each year without paying tax. The standard Personal Allowance is £12,570, which is the amount of income you do not have to pay tax on. This may be more if you claim Blind Person's Allowance, or less if your income is over £100,000.
These are some of the key terms and acronyms you may come across. But financial services is an industry that adds to its jargon every year, and one where rules and regulations can change. If you have any questions at all about any terms, please do not hesitate to contact us at anytime.
This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice.
