Tax Glossary
Quick reference for all UK tax terms used in the calculator. Click any letter below to jump to terms, or browse by category.
A
Annual Allowance pensions
The maximum pension contribution with tax relief (£60,000 per year). Reduced if you earn over £260,000 (tapered allowance).
Annual Revenue contractor
Your company's total invoiced amount before VAT. This is gross turnover, not profit. If VAT registered, enter amount excluding VAT.
Associated Companies contractor
Companies under common control that split the corporation tax small profits threshold (£50,000). Most contractors have 0 associated companies. Count only companies you or close family control.
B
Business Expenses contractor
Allowable expenses that reduce your company's taxable profit. Must be 'wholly and exclusively' for business. Include: software, equipment, office costs, insurance, accountancy fees. Keep receipts for 6 years.
C
Charitable Donations charity
Total annual donations to UK registered charities. Can reduce your adjusted net income, potentially helping you avoid losing personal allowance or child benefit.
Child Age household
Child's age in completed years. Determines eligibility for free childcare: 9 months-2 years (15 hours if eligible), 3-4 years (15 or 30 hours), 5+ (school age). Child Benefit available for under 16 (or under 20 in education).
Child Benefit household
Weekly payment of £25.60 for first child, £16.95 for others. If you or your partner earn over £60,000, you repay some or all through the High Income Child Benefit Charge. Over £80,000 = repay it all.
Learn more →Childcare Vouchers (Discontinued) household
Legacy salary sacrifice scheme closed to new joiners in 2018. If you already have it, you can keep it - saves more than Tax-Free Childcare for higher earners (up to £933/year tax relief). Can't combine with Tax-Free Childcare.
Company Pension Contribution contractor
As a company director, pension contributions paid directly from your company. These reduce corporation tax and count as employer contributions (no NI). Capped at £60,000 per year.
D
Director Salary contractor
For tax efficiency, most contractors take a low salary. £12,570 (full personal allowance) is optimal with Employment Allowance. Without it, £9,100 (NI threshold) or £4,996 is better.
E
Employer Pension Contributions pensions
Pension contributions your employer pays on top of your salary. These count towards the £60,000 annual allowance and can reduce your allowance if you earn over £260,000.
Employment Allowance contractor
Reduces employer National Insurance by up to £5,000/year. Eligible if you have at least one employee (other than director) earning above £9,100/year. Most solo contractors are NOT eligible.
Learn more →F
Free Childcare Hours household
Government-funded childcare hours: 15 hours/week for 9 months-4 years (if eligible), 30 hours/week for 3-4 years (working parents). Eligibility based on income - neither parent can earn over £100,000.
Learn more →G
Gift Aid charity
A tax relief scheme where charities can claim 25% extra from HMRC on your after-tax donations. Higher/additional rate taxpayers can claim back the difference.
Gross Annual Salary income
Your total annual salary before any deductions like tax, National Insurance, or pension contributions.
O
Other Income contractor
Income from rental properties, savings interest, investments outside your company, trusts, or foreign income. Can affect personal allowance taper if total income over £100,000.
P
Partner Income household
For Child Benefit and free childcare, HMRC considers the highest earner in your household. Include your partner (married, civil partner, or living together) for accurate calculations.
Payroll Giving charity
Charitable donations deducted before tax from your salary. The full amount goes to charity and you get immediate tax relief.
Pension Contributions (Personal) pensions
Regular pension contributions you make from your salary. Maximum with tax relief is £60,000 per year or 100% of earnings. If you earn over £260,000, your allowance is reduced.
Pension Types pensions
Three ways pensions are administered: Salary Sacrifice (deducted before tax and NI), Relief at Source (you pay after tax, provider claims 20% from HMRC), and Net Pay (deducted before income tax, after NI).
Learn more →R
Retained Profits contractor
Accumulated profits from previous years remaining in your company after paying corporation tax, salary, and dividends. Shows on your balance sheet.
S
Salary Sacrifice deductions
An arrangement where you give up part of your salary in exchange for a benefit (like pension), saving both tax and National Insurance.
Learn more →Self-Employment Income contractor
Income from sole trader or self-employed work outside your limited company. You pay income tax and Class 2/4 National Insurance on this.
T
Tax Code income
A code that tells HMRC how much tax-free income you get. Common codes: 1257L (standard £12,570 allowance), BR (all income taxed at basic rate), K codes (you owe tax from previous years).
Tax-Free Childcare household
Government tops up your childcare payments by 25% (max £2,000/year per child, £4,000 for disabled children). Both parents must earn under £100,000 and meet work requirements. Can't combine with childcare vouchers.
Learn more →Taxable Benefits deductions
Benefits in kind provided by your employer that are taxed as income. Common examples: company car, private medical insurance, gym membership, interest-free loans over £10,000.
V
VAT Flat Rate Scheme vat
Simplified VAT where you pay HMRC a fixed percentage of gross turnover. IT contractors: 14.5% (13.5% first year). Suitable if turnover under £150,000. Can't reclaim VAT on most expenses.
Learn more →VAT Registered vat
Required if taxable turnover exceeds £90,000 in any 12-month period. You charge 20% VAT on invoices and can reclaim VAT on business expenses.