Glossary
Every UK tax term, one page.
Plain-English definitions of the 40 tax terms UK sole traders, side-hustlers and CIS subcontractors actually run into.
A2 terms
- AIA — Annual Investment Allowance
- A capital allowance that lets a self-employed business deduct the full cost of qualifying equipment, machinery and most business vehicles from taxable profit in the year of purchase. The current limit is £1 million per accounting period — well above what most sole traders need.
- See also: Capital allowances on vehicles (gov.uk) ↗
- Allowable expenses
- Costs HMRC accepts as deductions from your self-employed income before tax. The rule: they must be incurred wholly and exclusively for the business. Most physical and operational running costs qualify — food, ordinary clothing and personal commuting do not.
- See also: What gig drivers can claim →
B2 terms
- Balancing payment
- The final tax owed at the end of the tax year, paid on the following 31 January. Worked out as your total tax liability minus any payments on account already made for that year.
- Basis period
- The period of profits a tax return covers. From 2024/25 onwards all sole traders and partners report on the tax year (6 April to 5 April), regardless of their accounting date — the legacy basis-period rules were abolished.
C6 terms
- Capital allowances
- Tax relief on the cost of buying business assets that last more than a year (vehicles, machinery, equipment). You can't deduct the full cost as an expense — capital allowances spread the relief or claim it under the Annual Investment Allowance.
- Capital Gains Tax (CGT)
- Tax on the profit when you sell or dispose of an asset that has gone up in value — shares, second homes, business assets. The current annual exempt amount is £3,000, above which gains are taxed at 18% or 24% depending on your income band.
- Cash basis
- An accounting method where you record income when cash arrives and expenses when cash leaves — not when the invoice is raised. From 2024/25 cash basis is the default for unincorporated businesses; you can elect into accruals if you prefer.
- CIS — Construction Industry Scheme
- The HMRC scheme under which contractors deduct tax from subcontractor payments. Subcontractors registered under CIS have 20% deducted; unregistered subcontractors have 30%. Most subcontractors recover a chunk of these deductions when they file Self Assessment.
- See also: CIS gross payment status guide →
- Class 2 NIC
- A flat-rate National Insurance contribution for self-employed people, set at £3.50 a week for 2025/26. Since April 2024 it's no longer compulsory above the Small Profits Threshold, but you can still pay voluntarily to maintain your State Pension and benefit entitlement.
- Class 4 NIC
- Profit-based National Insurance for self-employed people, charged at 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. Collected through Self Assessment alongside your income tax.
D1 term
- Dividend Allowance
- The amount of dividend income each tax year that's free of dividend tax. Currently £500. Above the allowance, dividend income is taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate) for 2026/27.
F1 term
- Final Declaration
- Under MTD ITSA, the year-end submission that replaces the old SA100 annual return. It rolls up your four quarterly updates, adds income outside MTD scope (interest, dividends, capital gains), and triggers the tax calculation. Due 31 January following the tax year.
- See also: MTD ITSA quarterly updates guide →
G3 terms
- Government Gateway
- HMRC's identity-verification system used to log in to all online tax services — Self Assessment, MTD, VAT, PAYE. You'll have one User ID and password tied to your tax records.
- Gross income
- Total turnover before any deductions — fees, commissions, expenses, allowances. The threshold tests for things like the £1,000 trading allowance and the MTD ITSA scope use gross income, not net profit. Easy to under-count.
- Gross payment status (CIS)
- A CIS upgrade for established subcontractors where contractors pay you the full invoice with no deduction. You then settle the actual tax owed via Self Assessment. Three tests — business, turnover, compliance — and an annual review.
- See also: How to qualify and apply →
H2 terms
- HICBC — High Income Child Benefit Charge
- A tax charge that claws back Child Benefit if your income is over £60,000 (2024/25 onwards). It tapers between £60,000 and £80,000, with full claw-back above £80,000. Triggers a Self Assessment requirement even for PAYE earners.
- HMRC
- His Majesty's Revenue and Customs — the UK government department responsible for collecting tax, paying some benefits, and enforcing customs. Every UK tax obligation eventually goes through HMRC's systems.
I2 terms
- Income Tax bands
- The tiered rates at which income above the Personal Allowance is taxed: 20% (basic rate, up to £50,270), 40% (higher rate, up to £125,140), 45% (additional rate, above £125,140). Different bands apply to dividends and to Scotland.
- ITSA — Income Tax Self Assessment
- The HMRC system through which self-employed people, landlords and others outside PAYE report income and pay tax. Currently filed annually; from April 2026 higher-turnover ITSA filers move to Making Tax Digital quarterly updates.
L1 term
- Late filing penalty
- The escalating fine for missing the 31 January Self Assessment deadline: £100 immediately, £10/day after 3 months (max £900), then 5% or £300 (whichever is greater) at 6 and 12 months. Late payment of tax incurs separate surcharges.
- See also: Deadlines & penalties FAQ →
M3 terms
- Marriage Allowance
- A way to transfer £1,260 of unused Personal Allowance to your spouse or civil partner if you earn under the threshold and they pay basic-rate tax. Saves the higher-earning partner up to £252 a year.
- MTD — Making Tax Digital
- HMRC's programme to move tax record-keeping and submissions onto digital, software-based workflows. Already live for VAT; rolling out to Income Tax Self Assessment from April 2026 onwards in stages.
- MTD ITSA
- Making Tax Digital for Income Tax Self Assessment. Replaces the annual return with four quarterly updates plus a Final Declaration, submitted via HMRC-recognised software. Mandatory from April 2026 (£50k+), April 2027 (£30k+) and April 2028 (£20k+).
- See also: Quarterly updates explained →
N2 terms
- National Insurance contributions (NIC)
- A separate tax on earnings that funds the State Pension and contribution-based benefits. Self-employed people pay Class 2 (voluntary, flat rate) and Class 4 (profit-based, 6% / 2%) — both collected via Self Assessment.
- Net profit
- Your taxable self-employed income — gross turnover minus allowable expenses (or minus the £1,000 trading allowance if you elect for it instead). The figure that drives your Income Tax and Class 4 NIC.
P4 terms
- Payment on account
- An advance instalment of next year's tax, paid in two halves on 31 January and 31 July. HMRC bases the amount on the previous year's bill. Catches a lot of first-time Self Assessment filers off-guard.
- Personal Allowance
- The amount of income each tax year you can earn tax-free across all sources — employment, self-employment, pensions. Currently £12,570. It tapers away at the rate of £1 for every £2 of income over £100,000 and disappears at £125,140.
- Personal Savings Allowance (PSA)
- Tax-free interest each tax year on top of the Personal Allowance: £1,000 for basic-rate taxpayers, £500 for higher-rate, nothing for additional-rate. Most savings interest now arrives untaxed and HMRC reconciles via PAYE or Self Assessment.
- Private Residence Relief (PRR)
- The Capital Gains Tax relief that means most people don't pay CGT when they sell their main home. Relief is reduced if part of the home is used exclusively for business — the trap to watch when claiming a dedicated home-office room.
- See also: Use of home as office guide →
Q1 term
- Quarterly update (MTD ITSA)
- Under MTD ITSA, a four-times-a-year submission of income and expenses for each business or property income source. Submitted via software — the gov.uk portal can't accept them. Deadlines fall on the 7th of August, November, February and May.
S3 terms
- Self Assessment
- The annual tax return system for people whose tax isn't fully collected through PAYE — sole traders, landlords, higher earners, anyone with significant non-employment income. Filing deadline 31 January for online returns.
- Simplified expenses
- Flat-rate alternatives to apportioning real costs. Three categories: vehicle mileage (45p/25p), use of home as office (£10/£18/£26 per month by hours worked), and live-in business premises. Saves time but isn't always more generous than actual costs.
- See also: Use of home as office guide →
- Sole trader
- An unincorporated self-employed individual who runs their own business. Personally liable for business debts (no separate legal entity), files Self Assessment annually, pays Income Tax and Class 2/Class 4 NIC. The simplest UK business structure.
T3 terms
- Tax year
- The 12-month period HMRC uses for income tax: 6 April to 5 April. Different from the calendar year and from many businesses' accounting year. The 2025/26 tax year ran 6 April 2025 to 5 April 2026.
- Time to Pay
- An HMRC instalment arrangement for paying a tax bill you can't settle in full. Available online for most Self Assessment debts under £30,000 if you're up to date with returns. Doesn't break gross-status compliance for CIS subbies, provided instalments are met.
- Trading allowance
- A £1,000 tax-free exemption for self-employed and casual income. Below £1,000 gross, you owe nothing and don't need to register. Above £1,000, you can claim the £1,000 as a flat deduction instead of actual expenses — whichever gives you more relief.
- See also: Vinted, Depop and eBay UK tax guide →
U1 term
- UTR — Unique Taxpayer Reference
- Your 10-digit personal HMRC reference, issued when you register for Self Assessment. Required to file any return and to talk to HMRC about your account. Don't share it casually — it's a credential, not a public ID.
V2 terms
- VAT — Value Added Tax
- A consumption tax charged on most goods and services in the UK. Standard rate is 20%. Businesses with VAT-taxable turnover above the registration threshold must register, charge VAT to customers, and submit returns to HMRC.
- VAT registration threshold
- The rolling 12-month turnover figure that triggers compulsory VAT registration: currently £90,000 (raised from £85,000 in April 2024). Below the threshold you can register voluntarily — sometimes useful if your customers can reclaim input VAT.
W1 term
- Wholly and exclusively
- The legal test that determines whether an expense is deductible: it must be incurred wholly and exclusively for the purposes of the business. Mixed-purpose costs fail unless they have an identifiable, exclusively-business portion that can be apportioned.
Sources & verification
Verified 19 April 2026
Every figure on this page (allowances, thresholds, rates) was taken from primary HMRC / gov.uk sources and verified on the date above. UK tax law changes annually — always check the source URL for the latest figure before acting on it.
- 01Income Tax rates and Personal Allowances (gov.uk)
Personal Allowance £12,570; basic 20% to £50,270; higher 40% to £125,140; additional 45%.
- 02Marriage Allowance (gov.uk)
£1,260 transferable allowance.
- 03High Income Child Benefit Charge (gov.uk)
£60,000 threshold from 2024/25 onwards.
- 04Self-employed National Insurance rates (gov.uk)
Class 2 £3.50/wk; Class 4 6% / 2% with £12,570 / £50,270 thresholds.
- 05Tax on dividends (gov.uk)
£500 dividend allowance; 10.75% / 35.75% / 39.35% rates from April 2026.
- 06Tax on savings interest (gov.uk)
Personal Savings Allowance: £1,000 basic / £500 higher.
- 07VAT registration: when to register (gov.uk)
£90,000 VAT registration threshold.
- 08Capital Gains Tax allowances (gov.uk)
£3,000 annual exempt amount.
- 09Annual Investment Allowance (gov.uk)
£1 million AIA limit since January 2019.
- 10Tax-free allowances on property and trading income (gov.uk)
£1,000 trading allowance.
- 11Check if you're eligible for Making Tax Digital for Income Tax (gov.uk)
MTD ITSA threshold tranches: £50k April 2026 / £30k April 2027 / £20k April 2028.
This glossary is general information, not personal tax advice. If your situation is complex, speak to a qualified tax adviser.