Tax glossary

40 UK tax terms explained in plain English. Definitions and figures are for the 2026/27 tax year (6 April 2026 to 5 April 2027).

Employment

Benefit in kind (BiK): A non-cash perk from your employer, like a company car or medical insurance, that you pay tax on.
Flat rate expenses: Fixed annual amounts HMRC lets certain jobs claim for uniforms and tools without keeping receipts.
Mileage allowance (AMAP): The tax-free rate for business miles in your own vehicle: 55p a mile for the first 10,000 miles from April 2026.
P11D: The annual form employers use to report taxable benefits like company cars and medical cover to HMRC.
P45: The form you get when leaving a job, showing your pay and tax so far this tax year for your next employer.
P60: Your annual end-of-year certificate showing total pay and tax deducted, issued by 31 May each year.
P87: The form employees use to claim tax relief on job expenses like uniforms, tools and business mileage.
Salary sacrifice: Giving up salary in exchange for a benefit like pension contributions, saving tax and NI for you and your employer.

Capital Gains Tax (CGT): Tax on profit when you sell an asset: 18% or 24% above the £3,000 annual exemption.
Dividend allowance: The first £500 of dividends each year is tax-free; above that, rates start at 10.75% in 2026/27.
ISA (Individual Savings Account): A wrapper that makes savings interest, dividends and investment gains completely tax-free, with a £20,000 annual allowance.
Personal Savings Allowance (PSA): Tax-free savings interest of £1,000 a year for basic-rate taxpayers, £500 at higher rate, nothing at additional rate.

CIS (Construction Industry Scheme): The scheme where contractors deduct 20% (or 30%) tax from subcontractors' pay before it reaches them.
Making Tax Digital (MTD): HMRC's digital regime requiring software-kept records and quarterly updates, mandatory for incomes over £50,000 since April 2026.
Payment on account: Advance payments towards next year's tax bill, due 31 January and 31 July, each 50% of last year's bill.
Self Assessment: The system for reporting income HMRC cannot tax at source, with a 31 January online filing deadline.
Simplified expenses: Flat rates the self-employed can use instead of actual costs: 55p a mile for vehicles and set monthly amounts for working from home.
Trading allowance: Lets you earn up to £1,000 a year from self-employment or side hustles completely tax-free.
UTR (Unique Taxpayer Reference): Your 10-digit HMRC reference number, issued when you register for Self Assessment and kept for life.

Class 1 National Insurance: The NI employees pay through payroll: 8% on earnings between £12,570 and £50,270, then 2% above.
Class 4 National Insurance: The NI self-employed people pay on profits: 6% between £12,570 and £50,270, then 2% above.
Employer's National Insurance: The 15% NI employers pay on each employee's earnings above £5,000 a year, on top of gross salary.
National Insurance (NI): A second tax on earnings that also builds your entitlement to the State Pension and some benefits.

Corporation Tax: The tax limited companies pay on profits: 19% up to £50,000, 25% above £250,000, tapered in between.
IR35 (off-payroll working): Rules that tax contractors like employees when their working arrangement looks like disguised employment.
VAT (Value Added Tax): The 20% tax on most goods and services, which businesses must register for once turnover passes £90,000.

Emergency tax: A temporary tax code (usually ending W1, M1 or X) used when HMRC does not yet know your full position.
High Income Child Benefit Charge (HICBC): A tax charge that claws back Child Benefit when the higher earner in a household makes over £60,000.
Marginal tax rate: The tax you pay on your next pound of income, which can be far higher than the headline bands suggest.
Marriage Allowance: Lets a low earner transfer £1,260 of their Personal Allowance to a basic-rate spouse, saving up to £252 a year.
PAYE (Pay As You Earn): The system employers use to deduct income tax and National Insurance from wages before you are paid.
Personal Allowance: The amount of income you can earn each tax year before paying any income tax: £12,570 in 2026/27.
Tax bands: The income ranges taxed at each rate: 20%, 40% and 45% in most of the UK, six different rates in Scotland.
Tax code: The letters and numbers HMRC gives your employer to work out how much tax to take from your pay.

Late payment interest: Interest HMRC charges on unpaid tax from the due date, currently 7.75% a year.
Tax year: The UK tax year runs from 6 April to 5 April, and every allowance and threshold resets with it.

Pension annual allowance: The most you can pay into pensions each year with tax relief: £60,000, tapering down for very high earners.

Property allowance: Makes the first £1,000 of rental income each year tax-free, no return needed.
Rent a Room scheme: Earn up to £7,500 a year tax-free by letting a furnished room in your own home.
Stamp duty (SDLT, LBTT, LTT): The tax on buying property, charged in slices above £125,000 in England, with different systems in Scotland and Wales.

Last updated 2026-07-07.