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The 1st Contact Contractor Accounting Glossary

A handy list of contractor accounting terms explained

Get to know your RTIs from your ASRs with our accounting glossary. This handy list of terms explains all the accounting terms you need to know.

1. Annual Financial Accounts

Annual Financial Accounts are also referred to as Company Accounts or Annual Accounts. They include an income statement, a balance sheet and a directors' report. Annual Financial Accounts need to be submitted to HM Revenue & Customs (HMRC) and Companies House.

2. Companies House

This is the UK Registrar of Companies where all types of companies are incorporated and registered. Each registered company is required to file Annual Financial Accounts and Confirmation statements (formerly known as annual statutory returns or ASRs) with Companies House.

3. Confirmation statements

Confirmation statements must be filed annually with Companies House. They contain details of directors, secretaries, the registered office, share capital and shareholding. These statements were previously known as Annual Statutory Returns.

4. Corporation Tax

Corporation Tax is a tax levied on company profits. The current rate of Corporation Tax is 20%.

5. Dividends

Dividends are payments made by a company to its shareholders from company profits.

6. Payroll Year End Returns (FPS)

Each tax year (6 April – 5 April) requires a final payroll return to “close off” the year’s PAYE (pay as you earn or salary tax) submissions to HMRC by all companies that pay staff salaries, by 19 April.

7. Expenses

Expenses arise during the discharge of company business; they are wholly and exclusively for the business and have been paid for personally. These expenses can be claimed back from the company. Expenses paid out by the company reduce the company profit and corporation tax liability.

8. Flat Rate VAT

Flat Rate VAT (FRV) is a special scheme involving a fixed-percentage rate of turnover, that takes no account of input VAT (that is, VAT on expenses) used to calculate the amount of VAT owed to the government. There is an exception for capital expenses, where any purchase over £2,000 can have its VAT portion claimed.

9. HM Revenue & Customs

Her Majesty's Revenue and Customs (HMRC), also referred to as "HM Revenue & Customs", is primarily responsible for the collection of taxes.

10. Limited company

A separate legal entity incorporated with Companies House.

11. National Insurance

National Insurance (NI) contributions are made based on earnings or profit. The name was adopted to distinguish it from general taxation. NI contributions provide for State Pension, unemployment pay and incapacity benefits.

12. PAYE

Pay as You Earn (PAYE) is a tax on income deduced at source by employers on behalf of HMRC.

13. Reimbursable expenses

These are expenses that arise during the discharge of contracted duties that the client has agreed to pay and can therefore be re-charged to the client or added to an invoice. Reimbursable expenses are normally recorded in the contract.

14. Real Time Information payroll returns

Also known as RTI. These are monthly payroll returns that need to be submitted to HMRC declaring what salaries your company have paid yourself and/or your employees.

15. VAT

Value Added Tax (VAT) is an end-user tax added to all products or services sold. Output VAT is added to invoices and collected on behalf of the government. Input VAT is what is paid to suppliers. The difference in output VAT less input VAT is required to be paid quarterly to HMRC.

 

If there’s anything we’ve missed in this section that you’d like to know about, our consultants are ready and able to help you with any questions or concerns you might have.

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