Accountants use a lot of shorthand. Most of it describes something simple. This glossary defines the terms you are most likely to see on a UK quote, tax return or set of accounts — in plain English, with no assumed knowledge.
The essentials
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- Accruals
- Recording income and costs when they are earned or incurred, not when the cash moves. Required for limited company accounts.
- Balance sheet
- A snapshot of what a business owns and owes on a single date.
- Bookkeeping
- The day-to-day recording of transactions — invoices, receipts, bank entries.
- Cash basis
- Recording income and costs only when money actually moves. Available to smaller sole traders and simpler than accruals.
- Chart of accounts
- The list of categories a business sorts its transactions into.
- Profit and loss (P&L)
- A summary of income minus costs over a period, showing whether the business made a profit.
- Reconciliation
- Checking your records against the bank statement so the two agree.
- Trial balance
- A check that every debit has a matching credit before accounts are prepared.
Company and filing terms
- Companies House
- The UK registrar where limited companies file their accounts and details.
- Confirmation statement
- An annual filing confirming your company details are correct. Separate from your accounts.
- Corporation tax
- Tax on a limited company’s profits. Paid nine months and one day after the year end.
- CT600
- The corporation tax return form filed with HMRC.
- Director’s loan account
- A record of money moving between a director and the company that is not salary, dividend or expenses.
- Dividend
- A payment of company profits to shareholders. Taxed differently from salary.
- Dormant company
- A company with no significant transactions in the period. Filing requirements are lighter.
- Filing deadline
- For most small companies, accounts are due at Companies House nine months after the year end.
- Micro-entity accounts
- A simplified set of accounts available to the very smallest companies.
- Statutory accounts
- The formal year-end accounts a limited company must prepare and file.
Tax terms
- Allowable expense
- A cost incurred wholly and exclusively for the business, which reduces taxable profit.
- Capital allowances
- Tax relief on equipment and other capital purchases, claimed instead of depreciation.
- Capital gains tax
- Tax on the profit made when you sell an asset that has risen in value.
- Class 2 / Class 4 NIC
- The National Insurance contributions paid by the self-employed.
- HMRC
- HM Revenue & Customs — the UK tax authority.
- Making Tax Digital (MTD)
- HMRC’s programme requiring digital record-keeping and software-based filing.
- Payment on account
- Advance instalments toward next year’s self assessment bill, due in January and July.
- PAYE
- Pay As You Earn — the system for deducting income tax and NI from wages.
- Personal allowance
- The amount of income you can earn before paying income tax.
- Self assessment
- The system for reporting untaxed income to HMRC, due by 31 January online.
- UTR
- Unique Taxpayer Reference — the ten-digit number identifying you to HMRC.
- VAT
- Value Added Tax, charged on most goods and services. Registration becomes compulsory above the turnover threshold.
- VAT threshold
- The rolling twelve-month turnover figure above which VAT registration is compulsory.
Working with an accountant
- Engagement letter
- The contract setting out exactly what your accountant will and will not do, and for what fee.
- Fixed fee
- An agreed price for a defined scope of work — the most common UK pricing model.
- Management accounts
- Internal reports produced monthly or quarterly to help you run the business.
- Professional clearance
- The letter your new accountant sends your old one when you switch.
- Chartered accountant
- A member of a chartered body such as ICAEW or ICAS, bound by its rules and complaints process.
- ACCA / AAT / ICAEW
- The main UK professional bodies. Membership means qualification, regulation and insurance.
- Money laundering checks
- ID checks your accountant is legally required to run before acting for you.
- Practising certificate
- The licence a qualified accountant needs to offer services to the public.
- Professional indemnity insurance
- Cover that pays out if your accountant’s mistake costs you money.
Still stuck on a term?
A good accountant will explain anything on this list in a sentence, without making you feel silly for asking. If yours cannot, that tells you something.