Tax glossary

IR35

The UK's off-payroll working rules — they decide whether a contractor should be taxed as a deemed employee.

Personal Service Company (PSC)

A Ltd company through which a single contractor provides their services to one or more clients.

Off-payroll working (Chapter 10)

The 2017/2021 IR35 rules putting the responsibility for IR35 status on the client, not the contractor.

Mutuality of obligation (MOO)

An employment-style commitment: the client must offer work, and you must accept it.

Right of substitution

The right to send a qualified replacement to do the work — strong evidence of being outside IR35.

Supervision, Direction and Control (SDC)

The client's right to direct how, when, and where you work — high SDC is strong evidence of inside IR35.

Deemed employee

A contractor treated as an employee for tax purposes under IR35 — PAYE applies, but no employment rights.

Inside IR35

An engagement that falls within IR35 — the contractor is taxed as a deemed employee.

Outside IR35

An engagement that doesn't fall within IR35 — the contractor can use Ltd company tax efficiency.

Payments on account

HMRC advance tax payments — half your prior-year bill, due 31 January and 31 July.

Dividend allowance

A tax-free portion of dividend income — £500 for 2026-27 (down from £2,000 in 2022-23).

Employment Allowance

A reduction in an eligible employer's NI bill — £10,500/year (raised from £5,000 in April 2025).

Corporation Tax

Tax on company profits — 19% small profits rate up to £50k, 25% main rate above £250k, with marginal relief between.

Class 4 National Insurance

NI for sole traders — 6% main rate on profits between £12,570 and £50,270, 2% above.

Self Assessment

HMRC's system for declaring income not taxed at source — filed annually by the self-employed, landlords, and many directors.

Tax code

The code HMRC gives your employer so they know how much of your pay is tax-free under PAYE.

Personal Allowance

The first slice of income you can earn tax-free each year — £12,570, frozen until April 2031.

Class 2 National Insurance

Flat-rate weekly NI for sole traders — largely abolished from April 2024, now only paid voluntarily below the small profits threshold.

Dividend tax

The tax charged on dividend income above the £500 dividend allowance — 10.75%, 35.75%, or 39.35% depending on your tax band (2026-27).

Marginal Relief (Corporation Tax)

The taper between 19% and 25% Corporation Tax for company profits between £50,000 and £250,000.

Higher-rate threshold

The point where income tax jumps from 20% to 40% — £50,270, frozen until April 2031.

Additional rate

The top income tax band — 45% on income above £125,140 (lowered from £150,000 in April 2023).

Director's loan

Money borrowed from or lent to your Ltd company outside of salary, dividend, or expense reimbursement — tracked in a Director's Loan Account (DLA).

UTR (Unique Taxpayer Reference)

The 10-digit number HMRC assigns you for Self Assessment — you need it for every return, payment, and HMRC conversation.

Annual Allowance (pension)

The maximum you can contribute to pensions each year with tax relief — £60,000 for 2026-27, tapered for high earners.

Salary sacrifice

A formal agreement to swap part of your gross salary for a non-cash benefit — usually pension, EV lease, or cycle-to-work.

Trading Allowance

A £1,000 tax-free allowance for casual self-employment income — no need to register with HMRC below this.

Status Determination Statement (SDS)

A formal IR35 status decision issued by a client under the off-payroll working rules.