Personal finance can be a pretty tricky area to become well versed in, especially if you have never needed to understand it before. If you’re self-employed and are trying to sort out your tax forms, or if you’re taking out a loan, you’ll need to know a few things if you’re to get everything right.
The use of jargon in personal finance help guides and be particularly unhelpful though, so consider using our jargon buster to help make your way through everything:
This stands for Her Majesty’s Revenue and Customs, which was once known as the Inland Revenue, and is responsible for all matters relating to tax, benefits payments and financials for the UK.
If a contractor completes work for a company on a self-employed basis, it is their responsibility to inform the HMRC when they begin working more than a certain number of hours. If they fail to do so and an investigation is carried out, they may be found to be in breach of IR35 and so will be fined.
National Insurance Contributions (NICs) are payments made towards their state benefits, including their state pension. It also covers the cost of any employment benefits they may need to take out if they find themselves without work.
If you have any employees, you will need to complete a P35 (also known as an Employer Annual Return). A section of the P35 is for contractors only.
You should take out PI (Professional Indemnity Insurance) to protect yourself against claims made by clients. They may do this if they believe you have given bad advice that has caused a financial loss. Your policy can help to pay for any legal fees and damages you may have to pay.
You will need to complete an SA (Self-Assessment) form if you are a contractor. This is also known as a tax return and is your chance to declare any tax which you must pay.
VAT (Value Added Tax) is a tax that is placed on top of products. At the moment, the UK’s VAT rate is 20%.
Can you think of any other jargon words that have confused you in the past?
This article was written by Aurora Johnson on behalf of Nixon Williams, an IT Contractor accountant.