UK Tax Glossary 2026/27 — 300 Tax Terms Explained in Plain English
Confused by tax jargon? Our comprehensive glossary explains over 300 UK tax terms in simple language. From Personal Allowance to IR35, every definition includes current 2026/27 HMRC rates, worked examples, and practical guidance.
Most Searched Terms
Personal Allowance
The amount you can earn tax-free each year - £12,570 for 2026/27.
PAYE
Pay As You Earn - the system for deducting income tax and NI from wages.
Self Assessment
The system for reporting income and calculating tax owed to HMRC.
IR35
Tax rules determining if contractors are genuinely self-employed or 'disguised employees'.
Corporation Tax
Tax paid by UK limited companies on their profits at 19% or 25%.
VAT
Value Added Tax charged at 20% on most goods and services.
Capital Gains Tax
Tax on profit when you sell or dispose of an asset that has increased in value.
National Insurance
Contributions paid by employees and employers that fund state benefits.
A
Accountant
A qualified professional who manages financial records and provides tax advice.
Accounting Software
Digital tools for recording financial transactions and managing business accounts.
Accruals Accounting
Recording income and expenses when they occur, not when money changes hands.
Additional Rate Tax
The highest UK income tax rate of 45% on earnings above £125,140.
Adjusted Net Income
Your total taxable income minus specific deductions, used to calculate allowance tapers.
Age Allowance
Historical increased Personal Allowance for people over 65 - now abolished.
Allowable Expenses
Business costs you can deduct from your income to reduce your tax bill.
Annual Allowance
The maximum amount you can save into pensions each year with tax relief.
Annual Investment Allowance (AIA)
Tax relief allowing businesses to deduct 100% of qualifying equipment costs up to £1 million.
Apprenticeship Levy
A 0.5% tax on employers with pay bills over £3 million to fund apprenticeships.
Auto-enrolment
Automatic workplace pension scheme enrollment for eligible employees.
Autumn Budget
The UK government's annual financial statement typically delivered in late October/November.
B
BACs Payment
Bank electronic transfer system used for salary payments and HMRC refunds.
Balancing Charge
Tax reclaimed when you sell a business asset for more than its written-down value.
Balancing Payment
The final Self Assessment payment due on 31 January to settle your tax bill after payments on account.
Bank Interest Tax
Tax on interest earned from savings accounts, paid at your marginal rate.
Basic Rate Tax
The standard UK income tax rate of 20% on earnings between £12,571 and £50,270.
Basic Rate Tax
The 20% income tax rate applied to earnings between £12,571 and £50,270 in 2026/27.
Basis Period
The accounting period used to calculate self-employed profits for tax purposes.
Beneficial Loan
A loan from your employer at below-market interest rate, creating a taxable benefit.
Benefit in Kind
Non-cash benefits provided by employers that are taxable, such as company cars, private healthcare, and gym memberships.
Benefits in Kind
Non-cash perks from employers that are taxable, like company cars or private healthcare.
Blind Person's Allowance
An additional tax allowance of £3,070 for registered blind or severely sight impaired individuals.
Business Asset Disposal Relief (BADR)
Reduced 14% Capital Gains Tax rate when selling qualifying business assets.
Business Rates
A tax on non-domestic properties based on their rateable value.
C
Capital Allowances
Tax relief on qualifying business assets like equipment, vehicles, and machinery.
Capital Gains Annual Exempt Amount
The amount of capital gains you can make tax-free each year - £3,000 for 2026/27.
Capital Gains Tax
Tax on profit when you sell or dispose of an asset that has increased in value.
Cash Basis Accounting
Recording income when received and expenses when paid - simpler for small businesses.
Child Benefit
Tax-free payments for parents raising children, subject to High Income Child Benefit Charge.
Class 1 National Insurance
NI paid by employees (8%/2%) and employers (15%) on employment earnings.
Class 1 National Insurance
National Insurance paid by employees and employers on earnings from employment.
Class 2 National Insurance
Flat-rate NI for self-employed, £3.45/week if profits exceed £6,845.
Class 2 National Insurance
Flat-rate National Insurance for self-employed people, now voluntary for most.
Class 3 National Insurance
Voluntary NI contributions to fill gaps in your State Pension record.
Class 4 National Insurance
NI paid by self-employed on profits - 6% on £12,570-£50,270, 2% above.
Class 4 National Insurance
National Insurance paid by self-employed people on their profits through Self Assessment.
Confirmation Statement
Annual filing required by Companies House to confirm company details are correct.
Construction Industry Scheme
A scheme requiring contractors to deduct tax from subcontractor payments in construction.
Corporation Tax
Tax paid by UK limited companies on their profits at 19% or 25%.
D
Deed of Covenant
A legal commitment to make regular payments, historically used for tax-efficient giving.
Deferring Tax
Legal strategies to delay paying tax to a later date for cash flow benefits.
Directors Loan
Money borrowed from or lent to your company as a director/shareholder.
Dividend
A payment made by a company to its shareholders from profits, taxed at special dividend tax rates.
Dividend Allowance
The amount of dividend income you can receive tax-free each year - £500 for 2026/27.
Dividend Tax
Tax on dividend income at 8.75%, 33.75%, or 39.35% depending on your tax band.
Domicile
Your permanent home country for tax purposes, affecting how overseas income is taxed.
E
Effective Tax Rate
Your actual tax as a percentage of total income, usually lower than marginal rate.
EIS
Enterprise Investment Scheme - 30% income tax relief for investing in qualifying companies.
Employee Benefits
Non-salary compensation like pension contributions, health insurance, and company cars.
Employer's National Insurance
NI contributions paid by employers at 15% on earnings above £5,000.
Employment Allowance
Up to £10,500 off your employer NI bill for eligible employers.
Enterprise Investment Scheme
Tax relief scheme offering 30% Income Tax relief on investments in qualifying small companies.
F
First Year Allowance
100% tax relief in the year of purchase for qualifying business assets.
Fiscal Drag
The effect of frozen tax thresholds pushing more people into higher tax bands.
Flat Rate VAT Scheme
A simplified VAT scheme where you pay a fixed percentage of turnover to HMRC.
Foreign Income
Income from outside the UK that may be taxable depending on your residence status.
Full Expensing
100% first-year tax relief for companies on qualifying plant and machinery.
G
Gift Aid
A scheme allowing charities to claim 25p extra for every £1 you donate.
Gift Aid
A tax relief scheme that allows charities to reclaim basic rate tax on your donations.
Gross Income
Your total income before any tax deductions or allowances.
Gross Profit
Revenue minus direct costs of goods sold, before overhead expenses.
H
High Income Child Benefit Charge
A tax charge that claws back child benefit when a parent earns over £60,000.
High Income Child Benefit Charge
A tax charge that claws back Child Benefit when either parent earns over £60,000.
Higher Rate Tax
The 40% UK income tax rate on earnings between £50,271 and £125,140.
Higher Rate Tax
The 40% income tax rate applied to earnings between £50,271 and £125,140 in 2026/27.
HMRC
Her Majesty's Revenue & Customs - the UK government department responsible for tax collection.
Holiday Pay
Pay you receive while on annual leave, calculated on normal earnings.
I
Income Tax
Tax paid on your earnings, pensions, and other income at 20%, 40%, or 45%.
Indexation Allowance
Historical CGT relief that adjusted for inflation - now abolished.
Individual Savings Account
Tax-free wrapper for savings and investments - £20,000 annual limit.
Inheritance Tax
Tax at 40% on estates worth over £325,000 when someone dies.
Inheritance Tax Residence Nil Rate Band
Additional £175,000 IHT allowance when passing your home to direct descendants.
IR35
Tax rules determining if contractors are genuinely self-employed or 'disguised employees'.
ISA
Individual Savings Account - a tax-free wrapper for savings and investments.
ISA (Individual Savings Account)
A tax-free savings and investment account with a £20,000 annual allowance.
J
L
Late Payment Interest
Interest charged by HMRC on overdue tax payments at Bank of England rate plus 2.5%.
Lifetime ISA
ISA with 25% government bonus for first home purchase or retirement.
Limited Company
A business structure where the company is a separate legal entity from its owners.
M
Making Tax Digital
HMRC's programme requiring businesses to keep digital records and file online.
Making Tax Digital
HMRC's programme requiring digital record-keeping and quarterly reporting for businesses.
Marginal Tax Rate
The tax rate you pay on your next pound of income.
Marginal Tax Rate
The tax rate you pay on your next pound of income - your highest tax band.
Marriage Allowance
Transfer £1,260 of Personal Allowance to your spouse to save up to £252 tax.
Marriage Allowance
Transfer £1,260 of Personal Allowance to your spouse, saving up to £252 in tax.
Maternity Pay
Statutory and employer pay during maternity leave - up to 39 weeks paid.
Mileage Allowance
Tax-free payments for using your own vehicle for business travel.
Mileage Allowance
Tax-free reimbursement rates for using your own vehicle for business travel - 55p per mile for cars.
N
National Insurance
Contributions paid by employees and employers that fund state benefits.
National Living Wage
The legal minimum hourly pay for workers aged 21 and over.
National Living Wage
Legal minimum hourly pay for workers aged 21+ - £12.21 from April 2025.
Net Income
Your income after all deductions - what you actually receive.
NI Credits
Credits protecting your State Pension record when you cannot work or earn.
O
P
P11D
The form employers use to report employee benefits in kind and expenses to HMRC.
P45
The form you receive when leaving a job, showing your earnings and tax paid to date.
P60
The annual statement from your employer showing your total earnings and tax paid for the tax year.
PAYE
Pay As You Earn - the system for deducting income tax and NI from wages.
Payment on Account
Advance payments towards your Self Assessment tax bill, due 31 January and 31 July.
Payments on Account
Advance Self Assessment payments equal to 50% of previous years tax bill.
Pension Annual Allowance
The maximum you can contribute to pensions with tax relief each year - £60,000 for 2026/27.
Pension Commencement Lump Sum
Tax-free cash you can take from your pension - typically 25% of the pot.
Pension Tax Relief
Tax benefits on pension contributions - effectively the government tops up your pension.
Personal Allowance
The amount you can earn tax-free each year - £12,570 for 2026/27.
Q
R
S
Salary Sacrifice
Give up salary in exchange for benefits, reducing tax and NI.
Salary Sacrifice
Giving up salary in exchange for benefits, saving tax and NI.
Salary Sacrifice
Exchanging part of your salary for benefits, saving both Income Tax and National Insurance.
SEIS
Seed Enterprise Investment Scheme - 50% income tax relief for investing in start-ups.
Self Assessment
The system for reporting income and calculating tax owed to HMRC.
Settlement Agreement
Legal agreement ending employment with agreed terms and tax treatment.
Stamp Duty Land Tax
Tax paid when buying property or land in England and Northern Ireland.
Stamp Duty Land Tax
Tax paid when buying property in England and Northern Ireland, starting at 5% above £250,000.
State Pension
Government pension based on your National Insurance record, currently £221.20/week.
Student Loan Deductions
Automatic repayments from your salary when you earn above your plan's threshold.
Student Loan Repayment
Repayments deducted from salary when earning above the threshold.
T
Take-Home Pay
Your net salary after all deductions - the amount actually paid into your bank account.
Tax Code
A code telling your employer how much tax-free pay you get.
Tax Credits
Means-tested benefits for low-income families - being replaced by Universal Credit.
Tax-Free Childcare
Government tops up 20% for childcare costs up to £2,000 per child per year.
Trading Allowance
A £1,000 tax-free allowance for self-employed income or casual trading.
U
Umbrella Company
A company that employs contractors and handles their payroll and tax.
Underpayment of Tax
When you have not paid enough tax in a year, usually collected via tax code.
UTR Number
Unique Taxpayer Reference - your 10-digit identifier for Self Assessment with HMRC.
V
VAT
Value Added Tax charged at 20% on most goods and services.
VAT (Value Added Tax)
A 20% consumption tax added to most goods and services in the UK.
VAT Flat Rate Scheme
Simplified VAT where you pay a fixed percentage of turnover, keeping the difference.
Venture Capital Trust
Quoted fund investing in small companies with 30% income tax relief on investments.
W
Working from Home Allowance
Tax relief for additional household costs when working from home.
Working from Home Allowance
Tax relief for additional costs when required to work from home.
Workplace Pension
A pension scheme arranged by your employer with mandatory minimum contributions from both parties.
Writing-Down Allowance
Annual capital allowance claiming a percentage of an asset pool each year.
Y
Frequently Asked Questions
What is the UK Tax Glossary?
The UK Tax Glossary is a comprehensive reference containing over 300 tax terms explained in plain English. It covers income tax, National Insurance, VAT, Capital Gains Tax, and more, all updated with 2026/27 HMRC rates and thresholds.
Are the tax definitions up to date for 2026/27?
Yes, all definitions are updated with the latest 2026/27 tax year rates, including Personal Allowance (£12,570), Basic Rate threshold (£50,270), NI rates (8%/2%), and all other current HMRC figures.
How do I find a specific tax term?
Use the search bar at the top to type any term, or browse alphabetically using the A-Z navigation. Each term links to a detailed page with definitions, examples, current rates, and FAQs.
Who writes the tax glossary content?
All content is written and reviewed by Waqas Sagar ACA, a qualified Chartered Accountant with ICAEW membership. Definitions are based on official HMRC guidance and updated when tax law changes.
Can I use this glossary for my tax return?
Yes, the glossary is designed to help you understand the terms you'll encounter when completing Self Assessment, managing payroll, or dealing with HMRC. Each term includes practical examples and links to relevant calculators.