Glossary – A to D


A

TermExplanation
ACCAThe Association of Chartered Certified Accountants is our governing body, for Chartered Certified Accountants. Members are trained to the highest levels and regulated throughout their career. See ACCA.com for more details.
Abridged AccountsThese are the abbreviated version of a limited company’s full accounts that are filed at Companies House and are placed on public record. For small or micro companies they do not include the Profit and Loss account.
Access RightsA way to limit the areas of a computer system users can get into. Restrictions may be for security or confidentiality reasons. Best practice is to ensure users only have access to the areas that they need to fulfil their responsibilities. Particularly helpful where a business owners wants to delegate bookkeeping for the first time!
AccountantAn Accountant is someone who prepares and interprets financial records. Some work in Practice, for a range of different clients, others in industry, for one business only. Those in Practice should support their business owner clients with a range of finanical matters, as well as ensuring they are meeting all statutory deadlines. Qualified Accountants are regulated by one of the recognised authorising bodies, and are regulalrly inspected, offering a reassurance of quality. There is no restriction on the use of the term, allowing anyone to trade as ‘an accountant’ so it’s an important consideration.
Accounting Reference DateThis is the date on which a company’s financial year ends. Also referred to as an ‘ARD’.
AccountsSometimes called ‘statutory accounts’ for a company, these are the made up on the Profit and Loss, Balance Sheet and detailed Profit and Loss, for the trading year of a business.
AccrualAn adjustment to your accounts for a cost or expense that you know is coming, and that relates to the period concerned, but that hasn’t arrived yet.
Aggressive Tax schemesThese are Tax Avoidance schemes, where the tax legislation is manipulated to avoid a liability, using a an advantage or loophole that was never intended. HMRC are actively working to close as many as possible, and they can result in higher bills than would have been paid, as well as interest and penalties.
Alternative FinanceA source of finance for businesses that doesn’t come from banks or traditional sources, including peer to peer lending, invoice trading and crowdfunding. This can be more flexible and more obtainable, but care must be taken to ensure the validity of the source.
AmortisationA way to reduce the value of an intangible asset, such as goodwill, patents or trademarks, for example a set percentage per year over a number of years.
Annual Investment AllowanceA form of tax relief that allows a business to offset the total of qualifying capital expenditure up to a certain limit against its taxable profts each year.
AppstackA combination of software Apps that increase efficiency in a business. A general Appstack will usually add value, but care should be taken to ensure the combination is optimised for a specific business.
Asset FinanceThis is a way to access finance, that provides security to the lender against the balance sheet assets of a business, including short-term investments, stock and trade debtors.
AssetsResources the business can sell or convert into cash or use to produce value. For example, stock, cash in the bank, trade debtors, prepaid amounts.
AuditAn audit is carried out once a set of accoutns have been produced. It requires an independent, regulated outside body, usually an accountant, inspecting set aspects of the records and the business processes to validate the figures within the accounts. A statutory audit is required once a company exceeds a certain turnover limit or if a properotion of shareholders request one.

B

TermExplanation
Bad DebtAn amount of credit owed to a business that is unlikely to be received. A bad debt may trigger adjustments to the accounts and to VAT records.
Balance SheetA statement of the assets and liabilities of a business at any one moment in time. Most commonly reported at year end.
Basis PeriodA set of rules which designate the period upon which HMRC assess your tax liability, and allocate profits and losses to specific tax years.
Benefit in KindAny additional benefit received as a result of your employment, beyond your salary. Examples would include a company car, subsidised accomodation, preferenatial loans, childcare…
BookkeepingThe process of recording financial transactions within a business or other organisation. These include purchases, expenses, sales and reconciliation of bank records. Best practice is for these processes to be kept up to date as frequently as practicably possible so the business owner can monitor performance. Primarily completed electronically using cloud based systems that allow digital submission of reports to HMRC.
BreakevenThe monetary point where revenue received in a business exactlly matchs the total costs, and no profit or loss is made. Any sales income beyond this point is profit.
BudgetsA compilation of the key numbers of a business used to monitor its performance and, from there, make informed decisions. Often entered into the businesses bookkeeping system to make regular reviews performance against preset targets easily accessible.
Business ModellingA way to predict the outcomes of major decisions or changes before implementation. Scenarios can be created that model different strategic or operational plans and projects that can be refined and challenged amongst all stakeholders.
Business PlanA document that describes your business, your objectives and goals. It should also consider strategies, sales, marketing and financial forecasts, with an analysis of your competition, pricing decisions and areas of risk. Often used to support finance applications, this should be a living document rather than something you create and then hide away.
Business Recovery LoansA scheme to provide financial support to businesses as they recover from the Coronavirus Pandemic, due to close on 30th June 2022. A government guarantee applies up to 70% of the loan value, which can be up to £2million for businesses with a turnover below £45million.

C

TermExplanation
Capital AllowancesClaims you can make against your profits for items that you purchase that are to be used within your business, usually called ‘plant and machinery’.
Capital ExpenditureAssets that are retained in a business to be used, for example, equipment, machinery, business vehicles.
Capital Gains TaxAlso known as CGT. A tax you must pay if you make a profit on the sale of an asset. An annual allowance applies, and the amount payable depends on whether you are a basic or higher rate taxpayer. Investments that qualify for CGT include second properties, shares outside of an ISA or Pension, a business and valuable household items such as paintings, antiques or jewellery, though some private possession are exempt. A time limit for payment to be made applies to some transactions, so always check before your sale is due to complete that you will be able to meet the appropriate deadline.
Cash FlowThe movement of money into or out of a business. Cash Flow can be positive, where the amount of cash held is increasing, or negative, where it reduces. A careful eye is needed to monitor cash flow as it can be fatal for a business to run out of cash.
Cash Flow ForecastA way to predict the cash position of a business as it varies over time, used to highlight potential pressure points and times that any be more suitable for investment or growth efforts.
CCABThe Consultative Committee of Accountancy Bodies is the group of five chartered professional bodies of British qualified chartered accountants, that includes our governing body, the Association of Chartered Certifed Accountants (ACCA).
Companies HouseAlso known as the Registrar of Companies for the UK, Companies House is a Government agency that stores company information and makes it available to the public. It also manages the Register of companies, and is the body to whom accounts are submitted, and who incorporates and dissolves those companies. Offices are in London, Cardiff, Edinburgh and Belfast.
Company CarsA vehicle provided to an employee, usually who needs to drive as part of their job, that is then available for business and personal use. Not necessarily just a car, but can be a van or a motorcycle. The provision of the car is classed as a Benefit in Kind and is taxable on a range of factors, including the fuel type, market price and emissions produced.
Company SecretaryAn officer of a limited company, a Company Secretary is no longer mandatory for a private limited company. They are responsible for the statutory filings for a company, for making sure all deadlines are met and for keeping the statutory records up to date. They usually form part of the top level management of the business, and share some responsibilities with the Directors.
Confirmation StatementPreviously known as the Annual Return, this is a form (CS01) that is legally required to be submitted to Companies House every year by a limited company. It gives details of key informtion about the shareholders and officers of the company as at a certain date, usually the anniversary of the company’s incorporation. Non-submission does not attract a penalty, but can eventually trigger the striking off of the company and is a creminal offence which can result in personal fines for Directors.
Corporation TaxThe equivalent for a company of income tax. Calculated on the profits a company makes each year, it must be paid nine months and one day after the year end.
CreditorsSomeone who gives credit to your business and expects to be repaid.
Crowd FundingA way to raise finance for a business or venture in small amounts from many people, usually through an online portal. This investment may be for no return, or in return for equity or interest payments.
CT41GA form issued by HMRC to all newly incorporated companies, it collects details about the company and its officers.
CT600Corporation Tax Return. This is the tax return that tells HMRC how much tax a limited company must pay, based on its profits each year.
CVAAn abbreviation of a Company Voluntary Arrangement, this is an agreement facilitated by an insolvency practitioner, between an insolvent company, who cannot pay its debts, and its creditors. The company is allowed to freeze its debts, continue to trade and repay a set amount on a regular basis to repay the total owed over an agreed period. Agreement to the CVA is required by 75% of creditors.

D

TermExplanation
Data ProtectionThe control of personal data by organisations, business and the Government. Anyone handling personal data has to ensure it is used fairly, lawfully and transparently. Also, the process of safely storing that data to avoid corruption, loss or compromise in the event of any event that could render it unusable or inaccessible. Data protection in the UK is governed by the ICO, an ‘independent authority set up to uphold information rights in the public interest, promoting openness by public bodies and data privacy for individuals.’
Debt ManagementA way to get or keep your debts under control through financial planning and budgeting, the ultimate goal being to move out of debt entirely.
Debtor DaysHow quickly a business gets paid for the work completed. Calculated by dividing the number of daily sales by the nuber of days taken for funds to be received. Reducing Debtor days can drastically improve your cash flow and is also a perfect justification for getting invoices out promptly!
DebtorsA customer who hasn’t paid for the product or service provided, once an invoice has been raised.
Deferred IncomeOccasionally, a customer will pay for work that hasn’t yet been completed, for example if a budget will be lost if it isn’t spent by a particular date. The funds have not yet been earned. At the end of an accoutning year it’s important that these amounts are not be included in this year’s figures, so the income is postponed, or deferred.
Deferred TaxThe tax that is due on the difference between profits for accounting purposes (before reductions such as Annual Investmentt Allowances) and profits for tax purposes (which would be the adjusted tax liability). i.e. If you were able to reduce your £40,000 taxable profits by £10,000 investment in equipment under the Annual Investment Allowance, your deferred tax would be £10,000.
DepreciationThe reduction in value of a business asset from its original price to take account of it’s reducing value over time. There are two ways of calculating depreciation, ‘Straight Line Depreciation’ which divides the original price paid by the number of years the asset will be of use. The ‘Reducing Balance’ method takes a consistent percentage each year but starts with the full value in year one, and in subsequent years with the already reduced value and uses the same percentage. For example, a £10,000 care depreciated at 25% is depreciated by £2,500 in the first year. In the second year, the starting value is £7,500, and so on.
DirectorsA Director is an officer of a limited company who has legal responsibiliites relating to the Company. These responsibilities include running the company with its best interests at heart, not their own, and for ensuring the company accounst and reports are properly prepared.They must be over 16 and not be disqualified from acting. Failure to act in accordance with the regulations can result in criminal proceedings and a ban from acting in future. Becoming a Director is not a decision to be taken lightly.
Directors Loan AccountAn amount shown in the Balance Sheet of the company that indicated who much money a Director, or family member, has received from the company that is not salary, dividend or repayment of expenses, capital invested or funds loaned. Tax becomes payable on the full amount by the Director and, if you’re also a shareholder, by the company, depending on when and how the loan is repaid and the amount of that loan.
DividendsA payment made to shareholders by a profitable company, that must not exceed the level of profits available from current or earlier years. Beyond a certain level, the Dividend Allowance, dividends received become taxable. The amount paid will depend on your income tax band. Taking dividends with a small salary can be more tax effective way for company directors to withdraw cash from the business, but should always be checked on a case by case basis.
Domestic Reverse ChargeAn anti-fraud procedure designed to counter criminal attacks on the UK VAT System. It applies to the Construction industry, and shifts the liability for accounting for output VAT from the supplier to the customer.
Dormant CompanyA company that is non-trading and has no other income e.g. investments.
DrawingsMoney or other assets taken out of a business, by the owner or partner for personal use.

Back to Glossary

Why not take a look at these sections too, as there is some overlap between our categories and we’d hate you to miss out!

Limited Company

Tax

Management & Growth

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Can I just say we are so pleased that we have moved to Baranov Associates. As we discussed when you visited, we had to find a way to take the stress out of all of the financials and you’re doing that for us! We can see how to use Xero more efficiently and so with us being as on top of it as we can be and with you and Liz we feel a lot more confident about our business being in good shape.


Mrs S James, Sandbanks Capital Partners Limited

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