TAX AND ACRONYMS ... WHAT DO THEY ALL MEAN?
OK, I am probably as guilty of this as every other accountant but there are A LOT of different taxes and they all get abbreviated! Having explained some of these the other day to a client, I thought there must be others of you who are interested...
So here's a quick cheat sheet to get you started!
CT – Corporation tax
This is the tax the businesses pay on their profits, from 1 April 2017 this reduced to 19%
CGT – Capital Gains Tax
This is the tax that you pay on the sale of assets, there are exemptions from this the key being your own home! But you don’t get taxed on the sale of your car either etc. If you sell stock and shares or have a rental property then this will apply. There are certain allowances and reliefs that can be claimed, the key one being your tax free allowance (Annual Exempt Amount) – for the 17/18 tax level this is £11,300. If you have significant gains it is definitely worth talking to an accountant to ensure that all allowances are being claimed and even better is talking to them before you sell the asset to ensure that any planning that can be done, is.
IHT – Inheritance tax
When you die, your estate (what you leave behind) is assessed and taxed above certain levels. If you think you will be leaving a large estate then looking at what steps can be taken to plan for this tax and mitigate it are definitely recommended.
IT – Income tax
What everyone has to pay on earnings above their personal allowance. For the 17/18 tax year the standard personal allowance is £11,500. The rates payable depend on your level of income and are 20%, 40% or 45%.
NI – National Insurance
There are varying classes of National Insurance. If you are an employee then you and your employer pay Class 1 NI, if you are self employed then you pay Class 2 (until 5 April 2018 when it is then being scrapped) and Class 4 NI. These are the main classes of National Insurance.
NIC – National Insurance Contributions
Basically NI by a different set of letters!
PAYE – Pay as you Earn
If you are an employee then you pay your income tax and national insurance on your income as you go, it is deducted at source by your employer and they are legally obliged to pay this to HMRC each month.
VAT – Value Added Tax
This is the tax added onto goods and services and paid by all. It is generally at 20% although gas and electricity are at 5% and there are some items that are at 0% or are exempt. There is a big difference between being 0% VAT and exempt as something that is at 0% could potentially have it’s rate increased in the future, whereas exempt items are just that – exempt. Not all businesses are registered for VAT, if they are small and below the threshold (£85k of sales) then they don’t need to register and many don’t as they don’t want the admin or to have to increase their prices by an additional 20%.
Are there any others? If there’s something you think I’ve missed off this list then let me know!