UK small business finance glossary

Plain-English definitions of the tax, banking, credit and accounting terms you'll meet running a UK small business.

A B C D F I L M N O P S T U V

A

Allowable expense: A business cost you can deduct from income before calculating tax.; To be allowable, an expense must be incurred wholly and exclusively for the purposes of the trade. Some costs (entertainment, most fines) are disallowed. Capital items go through capital allowances instead.; Related:Business expenses you can claim
Annual accounts (statutory accounts): A company's year-end financial statements filed with Companies House and HMRC.; Small companies usually file abridged or filleted accounts at Companies House and full accounts with their Company Tax Return at HMRC. Filing deadlines are 9 months after year-end for Companies House and 12 months for HMRC.
APR (Annual Percentage Rate): The yearly cost of borrowing on a credit product, including fees.; Representative APR shows what at least 51% of accepted applicants are offered. Your personal APR may be higher depending on credit assessment. For cards, APR only applies to balances carried beyond the interest-free period.
Avios: British Airways' frequent-flyer loyalty points.; Some UK business cards earn Avios on spending, redeemable for flights, upgrades and partner rewards. Earn rates vary; redemption value depends on route, cabin and availability.; Related:How to earn Avios on business expenses

B

Business bank account: A bank account used solely for business income and expenses.; Limited companies legally need a separate business account because the company is a distinct legal person. Sole traders aren't legally required to have one but most banks' personal account terms prohibit business use.; Related:Best free business bank accounts Do I need a business bank account?
Business credit card: A revolving credit facility issued to a business for business spending.; Business cards typically offer cashback, rewards or air miles on spending and give a short interest-free period when balances are paid in full each month. APR and fees apply to balances carried over.; Related:Business credit cards hub Rates, fees and APR explained

C

Capital allowances: Tax relief on the cost of business assets like equipment and vehicles.; Instead of deducting the full cost as an expense, you claim capital allowances over time — or in full via the Annual Investment Allowance (AIA) for most plant and machinery up to the AIA limit.
Cashback: A small percentage of card spend returned to the cardholder.; Business card cashback is typically 0.5%–1% of eligible spend, credited monthly or as a statement credit. Cashback is taxable income for the business in most cases.; Related:Cashback cards explained
Cashflow: The movement of money in and out of a business over a period.; A cashflow forecast projects future inflows (sales, loans) and outflows (rent, wages, tax) to show whether the business will have enough cash to meet obligations. Positive profit doesn't guarantee positive cashflow.; Related:Cashflow forecast template
Company number: The unique 8-digit identifier issued by Companies House to a UK limited company.; Your company number appears on the certificate of incorporation and stays with the company for life — even if the name changes. Quote it on letterheads, websites and invoices.
Confirmation statement: An annual filing to Companies House confirming a company's key details.; Every UK limited company must file a confirmation statement at least once every 12 months. It confirms registered office, officers, shareholders and SIC codes. The £34 (online) fee is paid once per 12-month payment period.
Corporation Tax: The tax limited companies pay on their profits.; UK Corporation Tax is paid on company profits — trading profits, investment gains and chargeable gains. For 2025/26 the main rate is 25% on profits over £250,000, with a 19% small profits rate up to £50,000 and marginal relief in between.; Related:Corporation Tax calculator

D

Director's loan account (DLA): A running record of money owed between a director and their company.; If you take money out of the company that isn't salary, dividend or expense reimbursement, it sits in your DLA. An overdrawn DLA at year-end can trigger a Section 455 tax charge until the loan is repaid.
Dividend: A payment of post-tax company profits to shareholders.; Limited companies can pay dividends to shareholders out of distributable profits. Dividends are taxed in the recipient's hands at dividend tax rates, after a small annual dividend allowance.; Related:Dividend tax calculator

F

FCA-authorised: Authorised and regulated by the UK Financial Conduct Authority.; Most consumer financial products and providers must be FCA-authorised. Check the FCA Register before sharing money or data with any provider you don't recognise.
FSCS: The UK Financial Services Compensation Scheme.; FSCS protects eligible deposits in authorised UK banks and building societies up to £85,000 per person per banking licence. Some business deposits are also eligible, depending on the business type.

I

Invoice: A request for payment for goods or services supplied.; A UK invoice should include a unique number, your business name and address, the customer's details, a description of the supply, the amount due, payment terms and (if VAT-registered) your VAT number and a VAT breakdown.; Related:How to write an invoice Free UK invoice template
IR35 (off-payroll working): Rules that decide whether a contractor is taxed as self-employed or as an employee.; If a contract would otherwise be one of employment, IR35 applies — the engager (or the contractor) must operate PAYE/NI as if the contractor were an employee. Status is based on the working reality, not the contract label.

L

Limited company: A company that is a separate legal entity from its owners (shareholders).; A UK limited company is registered with Companies House and pays Corporation Tax on its profits. Shareholders' liability is limited to the value of their shares. Directors run the company and have legal duties under the Companies Act 2006.; Related:How to set up a limited company After registering a limited company

M

Making Tax Digital (MTD): HMRC's programme requiring digital record-keeping and software-based returns.; MTD for VAT applies to all VAT-registered businesses. MTD for Income Tax Self Assessment (MTD ITSA) is being phased in for self-employed people and landlords with qualifying income above set thresholds.

N

National Insurance (NI): A tax on earnings that funds State benefits including the State Pension.; Employees pay Class 1 NI on wages; employers pay Class 1 employer NI on top. Sole traders pay Class 2 (if profits are above the Small Profits Threshold) and Class 4 NI through Self Assessment.

O

Open Banking: A UK regulatory framework letting customers share bank data with regulated third parties.; Open Banking lets accounting software, lenders and budgeting apps pull transaction data directly from your bank (with your consent), making bookkeeping and credit assessment faster.

P

PAYE: Pay As You Earn — HMRC's system for collecting Income Tax and NI from wages.; If you employ anyone (including yourself as a director on a salary), you usually need to operate PAYE — calculating tax and National Insurance, paying HMRC and filing RTI submissions each pay run.
Payment terms: The agreed timeframe within which an invoice should be paid.; Common UK payment terms are 14 or 30 days from the invoice date. Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses can charge statutory interest and compensation on late commercial payments.; Related:Payment terms explained
PSC (Person with Significant Control): Someone with significant control over a UK company, recorded at Companies House.; Usually anyone holding more than 25% of shares or voting rights, or who otherwise exercises significant influence. Companies must keep a PSC register and report changes to Companies House.

S

Self Assessment: HMRC's system for collecting Income Tax from people not taxed at source.; If you are self-employed, a company director, a landlord or have other untaxed income, you usually file a Self Assessment tax return each year. The deadline for online returns is 31 January following the end of the tax year (5 April).
Sole trader: A self-employed individual who runs their business as a person, not a company.; A sole trader is the simplest UK business structure. You and the business are legally the same — you keep all the profits after tax and you are personally liable for any debts. You register with HMRC for Self Assessment and file one tax return a year.; Related:How to register as a sole trader Sole trader vs limited company
Statutory late-payment interest: Interest a business can charge on overdue commercial invoices by law.; The statutory rate is the Bank of England base rate plus 8 percentage points. You can also claim a fixed sum of compensation (£40–£100 depending on invoice size) per late invoice.; Related:Chasing late payments

T

Tax year (fiscal year): The 12-month period UK personal tax is calculated on — 6 April to 5 April.; The personal/Self Assessment tax year runs 6 April to 5 April. Companies have their own accounting period (usually 12 months), which determines the Corporation Tax year.
Trading allowance: A £1,000 tax-free allowance for self-employed and casual income.; If your trading income is £1,000 or less, you usually don't need to declare it. Above that, you can either deduct actual expenses or claim the £1,000 trading allowance — whichever gives a lower taxable profit.

U

UTR (Unique Taxpayer Reference): A 10-digit number HMRC issues to identify a taxpayer.; You get a UTR when you register for Self Assessment or when a limited company is registered for Corporation Tax. Keep it safe — you need it for every HMRC interaction and tax return.

V

VAT (Value Added Tax): A consumption tax charged on most goods and services in the UK.; Standard VAT is 20%, with reduced (5%) and zero rates for some categories. You must register for VAT if your taxable turnover exceeds the VAT registration threshold in any rolling 12-month period.; Related:VAT threshold checker
VAT registration threshold: The taxable turnover level at which UK businesses must register for VAT.; The threshold is £90,000 of taxable turnover in any rolling 12-month period (from 1 April 2024). You can also register voluntarily below the threshold to reclaim input VAT.

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