UK Finance & Tax Glossary

Off-payroll working rules introduced by HMRC to prevent contractors from reducing their tax liability by operating through a limited company when they are effectively employees. If a contract falls "inside IR35", the contractor must pay income tax and NI as if employed.

Compulsory contributions made by employees, employers, and the self-employed in the UK. Contributions go towards state benefits including the State Pension, Statutory Sick Pay, and NHS services. The rate depends on your employment status and earnings.

HMRC legislation that determines whether a contractor working through a limited company should be taxed as an employee. If a contract falls "inside IR35", the worker pays income tax and National Insurance as if employed — removing the tax advantages of limited company operation. Since April 2021, medium and large private sector clients determine IR35 status, not the contractor. The financial difference between inside and outside IR35 can exceed £15,000 per year at typical contractor day rates.

The system HMRC uses to collect income tax and National Insurance directly from employees' wages before they are paid. Employers deduct the correct amount each payday and send it to HMRC, meaning most employees never have to submit a tax return.

The amount of income you can earn each tax year before paying income tax. For 2025/26, the standard Personal Allowance is £12,570. It reduces by £1 for every £2 you earn above £100,000 and is completely withdrawn at £125,140.

An arrangement where an employee agrees to give up part of their gross salary in exchange for a non-cash benefit provided by their employer — most commonly pension contributions, but also cycle-to-work schemes, electric car leasing, or childcare support. Because the sacrifice reduces gross salary before tax and National Insurance are calculated, both the employee and employer pay less NI. Basic rate taxpayers save 28p for every £1 sacrificed into a pension; higher rate taxpayers save 42p.

The annual tax return process used by HMRC for individuals who earn income outside of PAYE — including the self-employed, company directors, landlords, and high earners. The deadline for online returns is 31 January each year. Penalties apply for late filing.

A consumption tax added to most goods and services sold in the UK. The standard rate is 20%, with a reduced rate of 5% on some items such as home energy and children's car seats. Businesses with a taxable turnover above £90,000 must register for VAT with HMRC.

A non-cash benefit provided by an employer to an employee that has a monetary value and is therefore subject to income tax. Common examples include company cars, private medical insurance, and fuel cards. The taxable value (the P11D value) is determined by HMRC rules for each benefit type. For electric cars used through salary sacrifice schemes, the BiK rate is just 3% in 2025/26 — making them highly tax-efficient compared to petrol or diesel vehicles which attract BiK rates of 26–37%.

The level of sales at which a business's total revenue equals its total costs — meaning no profit and no loss. Understanding your break-even point tells you the minimum volume you need to sell before you start making money. It is calculated by dividing fixed costs by the contribution margin per unit.

A tax on the profit made when you sell or dispose of an asset that has increased in value. The tax applies to the gain, not the total sale proceeds. For 2025/26, the annual exempt amount is £3,000. Above this, CGT rates are 18% (basic rate taxpayers) or 24% (higher/additional rate taxpayers) on residential property, and 10% or 20% on other assets such as shares and business assets. Your main home is usually exempt from CGT under Private Residence Relief.

A fixed fee charged by a freelancer or contractor for one full working day — typically eight billable hours. Day rates are common in contract and project-based work because they give clients a predictable cost while protecting the freelancer from scope creep within a single day. The correct day rate is calculated from desired annual income plus expenses, divided by realistic billable days (usually 200–220), then adjusted upward to account for income tax, National Insurance, and other self-employment costs.

The amount of dividend income UK taxpayers can receive each year completely free of dividend tax. For 2025/26, the dividend allowance is £500. Above this threshold, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate). Limited company directors often structure their pay as a combination of low salary and dividends to reduce overall tax — though this strategy is less tax-efficient than it once was following multiple dividend allowance reductions since 2018.

The percentage of revenue remaining after subtracting the direct cost of goods sold (COGS). For example, if you sell a product for £100 and it costs £60 to make, your gross profit margin is 40%. A higher margin means more money left over to cover operating expenses and generate profit.

The amount added to a product's cost price to arrive at its selling price, expressed as a percentage of cost. If a product costs £50 and you sell it for £75, the markup is 50%. Markup is calculated on cost; margin is calculated on revenue — the two are different and often confused.

The ratio of your mortgage loan compared to the value of the property, expressed as a percentage. A £180,000 mortgage on a £200,000 property is 90% LTV. The lower your LTV, the less risk the lender takes — and typically the better mortgage rate you'll be offered.

A measure of how much income a buy-to-let property generates relative to its purchase price, expressed as a percentage. Gross yield divides annual rent by property value; net yield subtracts costs such as maintenance, letting agent fees, and insurance before dividing.

A tax paid when you purchase residential or commercial property in England and Northern Ireland above a certain threshold. Rates are tiered — you pay different percentages on different portions of the purchase price. First-time buyers and investors in additional properties each have their own rate structure.

A measure of the profitability of an investment relative to its cost, expressed as a percentage. Calculated as (Net Profit ÷ Cost of Investment) × 100. A positive ROI means the investment returned more than it cost; a negative ROI means it made a loss. Widely used in business decisions and marketing.

The number of calories your body needs to perform basic life-sustaining functions at complete rest — breathing, circulation, cell production, and temperature regulation. BMR is the foundation of TDEE calculations and is estimated using formulas such as Mifflin-St Jeor, which takes into account your age, sex, height, and weight.

A screening measure that estimates whether a person's weight is healthy for their height. Calculated as weight in kilograms divided by height in metres squared. The NHS classifies adults into four categories: underweight (below 18.5), healthy weight (18.5–24.9), overweight (25–29.9), and obese (30 and above).

The total number of calories your body burns in a day, including your Basal Metabolic Rate (the calories burned at rest) plus calories burned through activity. Eating at your TDEE maintains weight; eating below it creates a deficit for fat loss; eating above it builds muscle mass when combined with resistance training.