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Glossary of banking

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From allowable expenses to Value Added Tax, we've rounded up some common financial terms to make it easier to understand your business.


Allowable expenses

Allowable expenses are essential business costs that reduce your taxable profit. This means you will not have to pay tax on these items.

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We break down what allowable expenses are in our blog.

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Business loss

A business loss happens when expenses are greater than your business' income.

Corporation tax

If your business is a limited company, you will need to pay Corporation Tax on the profits up to 25%.

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There are different rates depending on how much profit you earn:

  • If your profits are under £50k you’ll pay a 19% tax rate.

  • If your profits are over £250,000 you'll pay the main tax rate of 25%.

  • If they are between £50,000 and £250,000, you may be entitled to 'Marginal Relief'.

You can find out more about Corporation Tax rates in our blog.

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Direct Debit

Direct Debits give companies permission to take money from your agreed bank account on a set date.

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For example, you might use a Direct Debit to pay your internet bill. Find out how to set up a direct debit with Mettle here.

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Employee National Insurance

National Insurance is a tax on earnings paid by employers and employees to fund various benefits like state pension, statutory sick pay and maternity leave.

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You can find the current rate of NI on the gov's website here.

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Employee pay after tax

Employee pay after tax, or take-home tax, is the amount an employee will be paid after tax, NI, any pensions or student loan contributions have been taken off their gross salary.

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HMRC has information on how to work out PAYE tax and National Insurance contributions here.

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Employer National Insurance (NI)

Employers have to pay the deducted income tax and National Insurance (NI) from employees to HMRC.

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The NI employers pay is twofold – the first is the contributions taken from the employees, the second is a NI fee the employer themselves pays.

Find out more about when you should pay National Insurance in our blog or head to HMRC's website for a table on the different tax bands for employees.

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Income Tax

This is the tax you pay on money you make in a tax year. You'll be able to earn a certain amount each year before any tax is due, which is called your personal allowance.

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Find out more about the income tax you pay as a small business owner here.

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Limited company

A limited company, according to the website, is a company that is legally separate from the people who run it. It has separate finances from your personal ones.

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Limited companies pay different tax to sole traders, for example. You can find out more about what tax limited companies pay in our blog here.

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National Insurance

National Insurance payments are used to pay for benefits and your State Pension.

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There are four different ‘classes’ of National Insurance. Self-employed people pay Class 2 rates, as well as Class 4 if their profits are over a certain amount.

You can find out more about how National Insurance applies to you here.

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New tax year

The new tax year is when new tax rates and allowances go into effect. In the UK, the tax year starts April 6 of each calendar year and ends April 5 of the following year. The current tax year runs from 6 April 2023 to 5 April 2024.

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There are various deadlines you need to meet before the new tax year:

  • 31 October – paper return deadline

  • 31 January – online return deadline

  • 31 January – deadline for paying the tax you owe

You can find more information about the deadlines on HMRC's website, here.

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Operating loss

Operating loss happens when operating expenses are greater than your company's income.


A P45 form is a statement that shows how much tax you've paid on income so far in the tax year. It is given to you when you no longer receive an income from that company.

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A P45 is important to have because it helps your next employer make sure you don't overpay or underpay tax.

You can find more information about P45s on the website here.

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A P60 form is a statement showing how much you've earned and the amount of tax you've paid in the last tax year.

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You'll get a separate P60 for each of your jobs every tax year. You can also get a P60 tax refund if you've paid too much Income Tax.

According to, you'll need a P60 to prove how much tax you've paid on your salary. This is so you can:

  • claim back overpaid tax

  • apply for tax credits

  • use it as proof of your income if you apply for a loan or a mortgage

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Pay As You Earn (PAYE)

PAYE is the system an employer or pension provider uses to take Income Tax and National Insurance contributions before they pay your wages or pension.

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You can find out more about paying tax on the website.

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A payee is anyone who receives funds from a payer. The payment can be a bank transfer, cheque, cash, etc. The payee could be an individual, business, or trust.

Per capita

In economics, business, or statistics, per capita is used to report average figures per person. For example if 1,000 apples are owned by 10 people, there are 100 apples per capita.

Per diem

Per diem often is a fixed daily allowance an organisation provides to employees or contract workers to cover business travel expenses.

Read more has more information on expense rates for employees travelling outside the UK, which you can find here.

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Personal Allowance

The standard personal allowance that you won't pay tax on is £12,570. This may be different if you claim Marriage Allowance or Blind Person’s Allowance. It will be smaller if your income is over £100,000.

Read more outlines the income tax rates and bands, which are:

  • Personal allowance – up to £12,570 at 0% tax rate

  • Basic rate – £12,571 to £50,270 at 20% tax rate

  • Higher rate – £50,271 to £125,140 at 40% tax rate

  • Additional rate – over £125,140 at 45% tax rate

Find out more information on our blog here.

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Postal order

Postal orders work the same way as a cheque, but you don't need a bank account to send them. They are slips that transfer money without any specific financial information.

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You can transfer up to £250 with a postal order.

You also get crossed and uncrossed orders:

  • Crossed postal orders can only be paid into a bank account or to pay a bill

  • Uncrossed can be exchanged for cash

Find out more on the Post Office's website here.

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Private sector

The private sector is a part of the economy that is not run by the government. Instead, it's run by companies and individuals.

Pro forma invoice

A provisional bill sent to your customer before delivery of goods or services. It includes the date of issue, a description and the value of the sale, as well as taxes or fees. Pro forma invoices avoid your customer having unanticipated charges.

Pro rata

Pro rata refers to the need to make an allowance in proportion to the whole. For example, if you're paid a pro rata wage, it’s calculated using what you’d earn working full time. Part time wages, paid pro rata, are proportional to full time wages.


Profit is the money left after paying for business expenses. Gross profit shows what’s left after paying for the goods sold. Operating shows what's left after also paying operating costs. Net shows what you made after deducting costs and tax.

Public limited company

A public limited company is a company structure for businesses in the UK. The business exists as a separate entity to the owners, offering protection from liabilities and debt, unlike the other structures such as sole trader and partnerships.


A quote is a document from a business to a customer stating the price of a sale before the customer has committed to the purchase. It lets a customer know how much the products or services will cost them to help them to decide if they will continue.


VAT on purchases

VAT on purchases is the total amount of VAT included on your purchases.

VAT on sales

VAT on sales is the total amount of VAT your customers have paid on sales.

VAT period

There are 12 months in a VAT accounting period. Most businesses send a VAT return every three months. Even if you have no VAT to pay or reclaim you must submit a VAT return for every accounting period.

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Read our VAT guide to find out more.

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VAT rates

There are three different rates of VAT – 20%, 5% and 0%.

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20% – The standard rate of VAT covers most things unless they are declared otherwise.

5% – Items on a reduced rate generally have a VAT of just 5%. Items in this category are things like gas and electricity in the home, children’s car seats and mobility aids for the elderly.

0% – Zero-rate goods can still be VAT-taxable, meaning you must declare them on your VAT return but the consumer is not charged any of the tax (0%). Goods and services with a zero rate are things such as books and newspapers, children’s clothes and motorcycle helmets.

Find out more in our guide on VAT.

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VAT threshold

The VAT threshold is the volume of annual turnover at which businesses are required to register for. The current UK VAT registration threshold stands at £85,000. This is due to change in 2024.

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You can find out more about how VAT works for small businesses in our guide, here.

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Value Added Tax (VAT)

VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses.

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It’s imposed at all stages of the supply chain with the cost ultimately being borne by the end consumer. All VAT-registered businesses have to charge VAT on the taxable goods and services that they sell. That VAT must then be paid to HMRC at regular intervals, usually each quarter.

Read Gorilla Accounting's piece on VAT to learn more.

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Wire transfer

A wire transfer, also known as a bank transfer, or credit transfer, is a way of sending electronic funds from one person or entity to another without using physical cash.

Year-to-date (YTD)

Year-to-date covers the time from January 1 to the current date.

Information correct as of 6 October 2023. The content of this page is based on our understanding of the topic at the time of publication and should not be taken as professional advice. Any of the information may be subject to change.

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