UK tax glossary
40 tax terms explained in plain English, with the numbers that apply right now. Definitions and figures are for the 2026/27 tax year (6 April 2026 to 5 April 2027).
Income Tax
Personal Allowance
The amount of income you can earn each tax year before paying any income tax: £12,570 in 2026/27.
Read definitionTax code
The letters and numbers HMRC gives your employer to work out how much tax to take from your pay.
Read definitionPAYE (Pay As You Earn)
The system employers use to deduct income tax and National Insurance from wages before you are paid.
Read definitionTax bands
The income ranges taxed at each rate: 20%, 40% and 45% in most of the UK, six different rates in Scotland.
Read definitionMarginal tax rate
The tax you pay on your next pound of income, which can be far higher than the headline bands suggest.
Read definitionEmergency tax
A temporary tax code (usually ending W1, M1 or X) used when HMRC does not yet know your full position.
Read definitionMarriage Allowance
Lets a low earner transfer £1,260 of their Personal Allowance to a basic-rate spouse, saving up to £252 a year.
Read definitionHigh Income Child Benefit Charge (HICBC)
A tax charge that claws back Child Benefit when the higher earner in a household makes over £60,000.
Read definitionNational Insurance
National Insurance (NI)
A second tax on earnings that also builds your entitlement to the State Pension and some benefits.
Read definitionClass 1 National Insurance
The NI employees pay through payroll: 8% on earnings between £12,570 and £50,270, then 2% above.
Read definitionClass 4 National Insurance
The NI self-employed people pay on profits: 6% between £12,570 and £50,270, then 2% above.
Read definitionEmployer's National Insurance
The 15% NI employers pay on each employee's earnings above £5,000 a year, on top of gross salary.
Read definitionSelf-Employment
Self Assessment
The system for reporting income HMRC cannot tax at source, with a 31 January online filing deadline.
Read definitionPayment on account
Advance payments towards next year's tax bill, due 31 January and 31 July, each 50% of last year's bill.
Read definitionUTR (Unique Taxpayer Reference)
Your 10-digit HMRC reference number, issued when you register for Self Assessment and kept for life.
Read definitionTrading allowance
Lets you earn up to £1,000 a year from self-employment or side hustles completely tax-free.
Read definitionSimplified 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.
Read definitionMaking Tax Digital (MTD)
HMRC's digital regime requiring software-kept records and quarterly updates, mandatory for incomes over £50,000 since April 2026.
Read definitionCIS (Construction Industry Scheme)
The scheme where contractors deduct 20% (or 30%) tax from subcontractors' pay before it reaches them.
Read definitionEmployment
P45
The form you get when leaving a job, showing your pay and tax so far this tax year for your next employer.
Read definitionP60
Your annual end-of-year certificate showing total pay and tax deducted, issued by 31 May each year.
Read definitionP11D
The annual form employers use to report taxable benefits like company cars and medical cover to HMRC.
Read definitionBenefit in kind (BiK)
A non-cash perk from your employer, like a company car or medical insurance, that you pay tax on.
Read definitionP87
The form employees use to claim tax relief on job expenses like uniforms, tools and business mileage.
Read definitionFlat rate expenses
Fixed annual amounts HMRC lets certain jobs claim for uniforms and tools without keeping receipts.
Read definitionMileage 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.
Read definitionSalary sacrifice
Giving up salary in exchange for a benefit like pension contributions, saving tax and NI for you and your employer.
Read definitionSavings & Investments
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.
Read definitionISA (Individual Savings Account)
A wrapper that makes savings interest, dividends and investment gains completely tax-free, with a £20,000 annual allowance.
Read definitionDividend allowance
The first £500 of dividends each year is tax-free; above that, rates start at 10.75% in 2026/27.
Read definitionCapital Gains Tax (CGT)
Tax on profit when you sell an asset: 18% or 24% above the £3,000 annual exemption.
Read definitionProperty
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.
Read definitionRent a Room scheme
Earn up to £7,500 a year tax-free by letting a furnished room in your own home.
Read definitionProperty allowance
Makes the first £1,000 of rental income each year tax-free, no return needed.
Read definitionBusiness & VAT
VAT (Value Added Tax)
The 20% tax on most goods and services, which businesses must register for once turnover passes £90,000.
Read definitionCorporation Tax
The tax limited companies pay on profits: 19% up to £50,000, 25% above £250,000, tapered in between.
Read definitionIR35 (off-payroll working)
Rules that tax contractors like employees when their working arrangement looks like disguised employment.
Read definitionPensions
HMRC & Compliance
Missing a term?
Tell us what confused you via the contact page and we will add it. For your tax code specifically, see the tax code guides.
