Tax Debts Glossary of Terms

Glossary of terms used by HM Revenue & Customs for Corporation Tax.
Here are definitions of key terms used by HM Revenue & Customs (HMRC) for Corporation Tax purposes. These are not necessarily the same definitions used by:

  • other HMRC tax areas such as VAT or Income Tax
  • other government agencies such as Companies House
  • various accounting conventions used to prepare audited accounts

Abbreviated accounts

The accounts that some smaller and medium-sized companies may prepare and file for Companies House - if your company files abbreviated accounts at Companies House, you must still file full accounts as part of your Company Tax Return.

Accounting period

The period of time used to determine your company or organisation's taxable profit for Corporation Tax. This normally matches your company or organisation's financial year.

Accounting reference date

The term used by Companies House to refer to the last day of your company's financial year - see 'annual report and accounts'.

Active

An active company or organisation is liable for Corporation Tax. Generally your company or organisation is active for Corporation Tax purposes when it is, for example, carrying on a business activity, trade or profession, buying and selling goods with a view to making a profit or surplus, providing services, earning interest, managing investments or receiving any other income. Compare 'dormant'.

Agent

An accountant, tax adviser or other professional that you appoint to deal with HMRC on your behalf for your tax affairs, including Corporation Tax.

Amendment

You make an amendment to your Company Tax Return when you make a change to (amend) your return form or supporting documentation that you have already filed. HMRC can also make an amendment to your return.

Annual Investment Allowance (AIA)

A type of capital allowance. For accounting periods that end after 31 March 2008 most companies and organisations can claim an Annual Investment Allowance of up 50,000. See 'capital allowances'.

Annual report and accounts

Also known as statutory accounts, financial accounts or audited accounts - the accounts that limited companies must provide to their members under the Companies Act and file at Companies House. You must also submit your company's annual report and accounts to HMRC as part of your Company Tax Return. If you choose to file abbreviated accounts at Companies House you must still submit the full statutory accounts to HMRC.

Apportion

If your Corporation Tax accounting period doesn't fall wholly within a single financial year - in other words it starts before and ends after 1 April - and different Corporation Tax rates applied in each, you'll need to divide or apportion your company or organisation's chargeable profits between the two financial years on a time basis (in days not months).

Assessment

If HMRC finds that your company or organisation hasn't paid enough Corporation Tax because, for example, you understated your taxable income or overstated your deductions or reliefs, they can make an assessment of the additional Corporation Tax you must pay.

Associated company

A company is associated with another company if one is under the control of the other, or if both are under the control of the same person or persons. Control is usually defined by reference to ownership of share capital or voting power. A company may be an associated company no matter where it is resident for tax purposes.

Authorised person

Someone authorised by a company to sign the declaration on a Company Tax Return such as the company secretary, a director, or other officer of the company, an authorised agent, a liquidator or an administrator if one is acting.

Balancing charge

May arise when you sell, give away or stop using a capital item in your business - balancing charges increase your taxable profits.

Best estimate

An estimated figure you use in your Company Tax Return based on all information available at the time you completed your return.

Business Asset Roll-Over Relief

When your company or organisation sells or disposes of some types of business asset, such as land and buildings, but intends to buy a new asset to replace it, it may be possible to defer the payment of any tax that would normally be due on any chargeable gain. See 'chargeable gains'.

Capital allowances

Enable you to deduct (write off) the cost of your company or organisation's capital assets - such as machinery, computers, equipment or vehicles - against your taxable profits for Corporation Tax. Instead of deducting the full cost of the item as an expense from your taxable profits in the year you bought it, you deduct a portion of that cost over a period of years. Compare with 'balancing charge'.

Carry on business

A company or organisation that is active.

Charge to tax, the

Companies and organisations that are subject to Corporation Tax deadlines and requirements are known to HMRC for Corporation Tax purposes as being within the charge to Corporation Tax, chargeable to tax or in the charge to tax. HMRC also refers to these companies and organisations as active or trading or engaging in business activity - also known as being liable for Corporation Tax.

Chargeable gain

If your company or organisation is liable for Corporation Tax, you do not pay Capital Gains Tax separately on your capital gains (in contrast to individuals, self-employed, sole traders or partners in partnerships). Instead, you pay tax on your chargeable gains as part of your Corporation Tax profits.

Charitable purposes

Carrying out the primary purpose of the charity and/or directly serving the beneficiaries of the charity.

Claim

An amount that reduces your taxable profit or tax payable; you generally make a claim as part of your Company Tax Return form. See 'deduction' and 'relief, tax'.

Close company

A company that is controlled directly or indirectly by five or fewer participators or any number of participators if they are all directors.

Close investment-holding company

A company that does not exist wholly or mainly to produce goods or offer services itself, but instead acts as a holding company by owning shares of other companies.

Closure notice

The notice HMRC sends you to complete an enquiry into the Corporation Tax affairs of your company or organisation.

Club

An unincorporated members' club such as a sports or social club that may be liable for Corporation Tax. Sometimes HMRC uses 'clubs' to also refer to societies, voluntary associations and other unincorporated bodies. See 'Community Amateur Sports Club ' and 'unincorporated organisation'.

Community Amateur Sports Club (CASC)

A sports club that's registered with HMRC. Some Community Amateur Sports Club activities are 'exempt' from Corporation Tax.

Companies House

The government agency that registers limited companies and receives accounts and other company information delivered under the Companies Acts and related legislation.

Company

A limited company that is registered in the UK or trades in the UK is liable for Corporation Tax. HMRC also uses company to refer to members' clubs, associations, societies or other unincorporated bodes that are subject to Corporation Tax deadlines and requirements.

Company Tax Return

You account for your company or organisation's Corporation Tax by delivering a Company Tax Return. A Company Tax Return includes a Company Tax Return form CT600, (or CT600 (Short) if appropriate) and any relevant supplementary pages (CT600A-CT600J), accounts, computations and other supporting documentation as appropriate.

Company Tax Return form

The form you submit as part of your Company Tax Return. There are two paper Company Tax Return forms - the CT600 and the CT600 (Short) - and an online form.

Computation

The maths which show how entries on your Company Tax Return form have been calculated from the figures in your company accounts - you attach these computations to your return if, for example, you're claiming marginal rate relief you need to attach a computation showing how you calculated those figures. Compare 'tax calculation'.

Corporation Tax

A tax on the taxable profits of limited companies and some organisations including charities, clubs, societies, associations, cooperatives and other unincorporated bodies.

Corporation Tax Self Assessment

A term used to indicate that it's up to you (rather than HMRC) to work out how much Corporation Tax your company or organisation needs to pay for each accounting period. You self assess your own Corporation Tax by filing a Company Tax Return.

Credit, tax

Tax credits reduce the amount of Corporation Tax you pay by deducting an amount (the credit) directly from the amount of Corporation Tax you would have paid. If you don't have any Corporation Tax to pay, sometimes you can get a cash repayment.

Declaration

The section at the end of your Company Tax Return form which you or an authorised person must read, sign and date to verify that the information in your return is correct and complete to the best of your knowledge and belief.

Deduction

An amount you deduct from your taxable profit for Corporation Tax purposes. HMRC uses deductions and reliefs to refer to various expenses, losses or allowances that you subtract from your profits before you calculate how much Corporation Tax to pay. This is in contrast to credits or other types of relief that are deducted directly from the amount of Corporation Tax payable.

Depreciating assets

Any fixed plant or machinery, not forming part of a building, or any asset that will have a life of 60 years or less from when it was acquired by your company or organisation.

Determination

If you don't file a Company Tax Return, your company or organisation will be charged a penalty and HMRC will tell you how much Corporation Tax you must pay by making a determination of tax payable and issuing you with a notice to pay.

Director's loan

A director, shareholder or other participator in a close company may loan their company money or borrow money from their company through a directors' loan account. Overdrawn directors' loan accounts are taxable, interest paid to a director on a director's loan account in credit is taxable.

Discovery assessment

An assessment issued by HMRC when it finds out that your Company Tax Return is wrong but it's too late to amend it. HMRC makes an assessment to collect the extra Corporation Tax your company should have paid.

Discovery determination

A determination made by HMRC when it finds out that your Company Tax Return is wrong but it's too late to amend it for an amount (such as a loss) that may affect the tax payable for another accounting period.

Dormant

A dormant company or organisation is not liable for Corporation Tax. Generally your company or organisation is dormant for Corporation Tax purposes when it is not active, that is, not carrying on any business activity, such as trading.

Due date

The deadline to pay your Corporation Tax, normally nine months and one day after the end of your accounting period - also known as normal due date.

Election

When your company or organisation has a choice (to elect) to do one thing and not to do something else for Corporation Tax purposes.

Enquiry

HMRC uses this term to denote when it is looking into - making an enquiry into - your Corporation Tax affairs. See 'notice of enquiry'.

Exempt

Organisations or activities that aren't subject to Corporation Tax requirements.

Filing date

The deadline by which your Company Tax Return must be delivered to HMRC - normally 12 months after the end of your accounting period. Also known as statutory filing date.

Financial year for Companies Act purposes

Your company's financial year begins and ends with the dates covered by your company's annual report and accounts as submitted to Companies House - usually but not always matches your Corporation Tax accounting period.

Financial year for Corporation Tax purposes

The tax year is called the financial year or fiscal year and runs from 1 April to 31 March.

First-Year Allowance

A type of capital allowance. In certain circumstances you may be able to claim this allowance in the year in which you incurred the expenditure.

Franked Investment Income (FII)

Arises where a company receives a distribution and is entitled to a tax credit in respect of that distribution. The amount of the FII is equal to the aggregate of the value or amount of a distribution together with the amount of the tax credit.

Group Payment Arrangement

This allows groups of companies to make joint payments of Corporation Tax.

Indexation Allowance

Allows for the effects of inflation when calculating chargeable gains on companies. You apply it both to the cost of the asset itself and any allowable costs of acquisition.

Individual

A person, sole trader, self-employed or a partner in a partnership - individuals are not liable for Corporation Tax.

Inline XBRL (iXBRL)

A way of embedding and displaying accounting/financial information in an HTML document, the universal language for web browsers. It allows data to be presented in a readable form, either on screen or in printed output: See 'XBRL'.

Instalment payments

The instalments (normally four) by which a large company must pay Corporation Tax.

Intangible assets

Include, subject to some exceptions, goodwill and intellectual property such as patents, trade marks, registered designs and copyright, together with licences to exploit such assets and other intangible assets, such as agricultural and fishing quotas.

Liable to (or for) Corporation Tax

A company or organisation liable to Corporation Tax is subject to Corporation Tax deadlines and requirements.

Main rate

The rate of Corporation Tax that a company pays Corporation Tax on if its taxable profits are over the Marginal Relief upper limit; also known as upper rate, full rate or large company rate. See also 'rates, Corporation Tax', 'small profits rate',

Marginal Relief

Marginal Relief is the amount you deduct from the Corporation Tax that you would have paid at the main rate had your company's taxable profits been over 1.5 million. You get less Marginal Relief if your profits are near to the Marginal Relief upper limit and more if your profits are smaller and closer to the Marginal Relief lower limit. See also 'standard fraction', 'ring fence fraction', 'small profits rate', 'main rate'.

Marginal Relief lower limit

The maximum amount of profits on which your company or organisation is able to pay Corporation Tax at the lower rate; currently 300,000.

Marginal Relief upper limit

The maximum amount of profits on which your company or organisation is able to pay Corporation Tax taking into account the effective Marginal Relief; also known as upper profit limit; currently 1.5 million; if your profits are over the Marginal Relief upper limit you pay Corporation Tax at the main rate.

Nominated company

Companies in a Group Payment Arrangement nominate one of the members to make the payments on behalf of all the companies within the arrangement. See 'Group Payment Arrangement'.

Notice of enquiry

The letter HMRC sends you to tell you they are making an enquiry into your company or organisation's Corporation Tax affairs.

Notice to deliver a Company Tax Return

The letter HMRC usually sends to your company or organisation soon after the end of your accounting period requiring you to file a Company Tax Return - comes with a payslip. Also known as form CT603.

Notice to pay

The notice HMRC sends you to tell you how much Corporation Tax to pay.

Off-the-shelf company

A company created by a company-formation agent and held as dormant pending onward sale to a new business or to a sole proprietor or partnership wishing to become a limited company. See 'shell company'.

Organisation

A charity, club, association, society or other unincorporated body that may be subject to Corporation Tax deadlines and requirements.

Participator

A person who has a share or interest in the capital or income of a company such as a director or shareholder. See 'director's loan'.

Permanent establishment

A company that is not resident in the UK but carries on trade in the UK from a fixed place of business (a permanent establishment) is liable for Corporation Tax on that activity.

Postponement application

If you're appealing against a Corporation Tax assessment or amendment, you can ask HMRC for all or part of your payment to be postponed until your appeal is settled by making a postponement application.

Qualifying purposes

For Community Amateur Sports Clubs the purposes of providing facilities for, and promoting participation in, one or more eligible sports.

Rates, Corporation Tax

There are currently two rates of Corporation Tax, depending on the company or organisation's taxable profits: the lower rate - also known as the small profits rate, and the upper rate - known as the full rate or main rate. There is also a sliding scale between the lower and upper rates known as Marginal Relief.

Relief, tax

An amount you deduct from your taxable profit for Corporation Tax purposes. HMRC uses reliefs and deductions to refer to various expenses, losses or allowances that you subtract from your profits before you calculate how much Corporation Tax to pay - this is in contrast to credits or other types of relief that are deducted directly from the amount of Corporation Tax payable.

Research and Development (R&D) Relief

A Corporation Tax relief that may reduce your company or organisation's tax bill by more than your actual expenditure on allowable R&D costs.

Ring fence activities

Income and gains from extraction activities or oil rights in the UK and the UK Continental Shelf. See 'ring fence companies'.

Ring fence companies

Companies engaged in ring fence activities. See 'ring fence activities'.

Ring fence fraction

The fraction companies with ring-fence profits use to calculate Marginal Relief. See also 'Marginal Relief'.

Shell company

A company bought off the shelf with nominee directors standing in front of whoever really benefits.

Small profits rate

The rate of Corporation Tax that a company pays if its taxable profits are no more than the Marginal Relief lower limit. See also 'rates, Corporation Tax' and 'Marginal Relief'.

Standard fraction

The fraction you use to calculate your Marginal Relief - companies with ring-fence profits should see 'ring fence fraction'. See also 'Marginal Relief'.

Straightforward tax affairs

The term HMRC uses to refer to small companies and unincorporated organisations who are able to use the short Company Tax Return form CT600 (Short).

Substantial Shareholding Exemption

There's no Corporation tax to pay on any chargeable gain made when trading companies (or holding companies of trading groups) sell or otherwise dispose of shares, interests in shares and certain assets related to shares in other trading companies. However, you can't offset losses against gains on the disposal of shareholdings outside of the substantial shareholdings exemption or any other assets.

Supplementary page(s)

Additional form(s) you may need to file as part of your Company Tax Return depending on your company or organisation's circumstances. There are supplementary pages for directors' loans, controlled foreign companies, groups and consortia, insurance, charities, tonnage tax, corporate venturing, cross-border royalties, ring fence trades and disclosure of tax avoidance schemes.

Tax calculation

The maths you show directly in your Company Tax Return when calculating how much Corporation Tax you need to pay. Compare 'computation'.

Tax liability

How much Corporation Tax your company or organisation owes.

Tax payable under S419 ICTA 1988

Refers to the legislation that covers Corporation Tax on directors' loans (Income and Corporation Taxes Act 1988 section 419).

Taxable income

Income generated by a company or organisation that is liable to Corporation Tax. See 'taxable profit'.

Taxable profit

The profits on which the amount of Corporation Tax your company or organisation pays is calculated. Taxable profit includes profits from all types of taxable income such as trading profits and investment profits. Also known as profits chargeable to Corporation Tax.

Unincorporated organisation

A business or other body such as a members' club, society or co-operative that's not incorporated as a limited company but not sole traders, partnerships, a local authority or a local authority association.

Writing Down Allowance

A type of capital allowance. When your company or organisation buys an asset you can deduct a certain amount from your trading profits in this and future accounting periods until the asset is accounted for (or written down) completely. See 'capital allowances'.

XBRL

Extensible Business Reporting Language - a standard for electronic business financial reporting. From 1 April 2011, you must pay your Corporation Tax for any accounting period electronically and from then, for any accounting period ending after 31 March 2010, you must also file your Company Tax Return (including supporting documentation) online. See 'iXBRL'.

Please call us or apply online for information and resources on outstanding business and company tax problems.