Salient Accounting & Finance
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The Salient glossary / 40 useful terms

Accounting & tax glossary.
Made clearer.

Forty accounting, tax and business terms explained in plain English, with practical examples and a clear route to the guidance you need.

40 terms. Each opens a full explanation and example.

A

Accruals

Accruals recognise income or costs in the period they relate to, even when the invoice or cash payment happens in another period.

B

Balance sheet

A balance sheet shows the assets, liabilities and equity of a business at a particular date.

Bookkeeping

Bookkeeping is the routine recording, classification and checking of a business’s financial transactions.

C

Capital allowances

Capital allowances are tax deductions that may be available for qualifying business capital expenditure.

Capital expenditure

Capital expenditure is spending on acquiring or improving assets that provide benefits beyond the current accounting period.

Capital Gains Tax (CGT)

Capital Gains Tax can apply to an individual’s gain when disposing of an asset that has increased in value.

Cash flow

Cash flow is the movement of money into and out of a business over a period.

Cash flow forecast

A cash flow forecast estimates future receipts, payments and bank balances using expected payment dates.

Construction Industry Scheme (CIS)

CIS is a tax deduction scheme under which contractors generally deduct money from qualifying subcontractor payments and pass it to HMRC.

Corporation Tax

Corporation Tax is a tax on relevant company profits, calculated under tax rules rather than simply copied from accounting profit.

Credit control

Credit control is the process of setting customer payment terms, monitoring unpaid invoices and following up overdue debts.

D

Director’s loan account

A director’s loan account records money owed between a company and a director outside correctly treated salary, dividends and expense payments.

Dividend

A dividend is a distribution a company makes to shareholders from available distributable profits, subject to the relevant rules.

E

EBITDA

EBITDA means earnings before interest, tax, depreciation and amortisation. It is one way to look at operating performance before those items.

G

Gross profit

Gross profit is sales revenue less the cost of the goods or services sold, before the remaining operating expenses.

I

Inheritance Tax (IHT)

Inheritance Tax can apply to an estate and to certain lifetime transfers, depending on the assets, allowances, reliefs and circumstances.

Input VAT

Input VAT is VAT charged on a business’s purchases which may be recoverable under the VAT rules.

IR35

IR35 and the off-payroll working rules address employment-related tax treatment for some people supplying services through an intermediary such as a personal service company.

L

Liabilities

Liabilities are amounts a business owes or obligations it must settle, recognised under the applicable accounting rules.

Limited company

A limited company is a separate legal entity with its own assets, obligations, records and reporting duties.

M

Making Tax Digital (MTD)

Making Tax Digital is HMRC’s programme for digital tax records and reporting through compatible software, with different requirements for different taxes.

Management accounts

Management accounts are financial reports prepared regularly to help owners and managers understand performance and make decisions.

N

Net profit

Net profit is the amount remaining after the relevant expenses have been deducted from revenue; the report should specify which costs and taxes are included.

O

Output VAT

Output VAT is VAT a VAT-registered business accounts for on its taxable sales and other relevant supplies.

P

PAYE

Pay As You Earn (PAYE) is the system employers use to account for Income Tax and National Insurance through payroll.

Payments on account

Payments on account are advance instalments towards a later Self Assessment bill, normally based on the relevant previous-year liability.

Payroll

Payroll is the process of calculating employee pay, deductions and employer costs, producing payslips and completing the associated records and reporting.

Pension auto enrolment

Pension auto enrolment is the workplace pension framework requiring employers to assess workers and carry out the duties that apply to them.

Profit and loss account

A profit and loss account reports income, costs and the resulting profit or loss over a period.

R

R&D tax relief

R&D tax relief is support for qualifying company research and development under the tax schemes applying to the relevant accounting period.

Reconciliation

Reconciliation compares two sets of records, explains differences and checks that the resulting balances agree.

Retained earnings

Retained earnings are accumulated accounting profits or losses kept in a company after relevant distributions and adjustments.

S

Self Assessment

Self Assessment is HMRC’s system for reporting relevant personal income and gains and calculating the resulting tax position.

Sole trader

A sole trader is an individual running a business personally rather than through a separate limited company.

T

Taxable turnover

For VAT purposes, taxable turnover is the value of relevant taxable supplies, including zero-rated supplies, before deducting business costs.

Trial balance

A trial balance lists the debit and credit balances in the accounts ledger at a particular point.

V

Value Added Tax (VAT)

VAT is a tax on relevant supplies of goods and services. Registered businesses account for output VAT and consider the input VAT they may recover.

W

Work in progress (WIP)

Work in progress describes goods or services that have started but are not complete at the reporting date.

Working capital

Working capital commonly means current assets minus current liabilities. In day-to-day management, it also describes money tied up in the trading cycle.

Y

Year-end accounts

Year-end accounts summarise a business’s financial position and performance for its accounting period under the applicable reporting requirements.

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