Accrual

A cost incurred before the invoice arrives, recorded in the period it belongs to rather than the period it is billed in. Accountancy fees, utilities and anything delivered before a year end and billed after it.

Accruals Basis

Recording income when it is earned and costs when they are incurred, whatever the money does. The required basis for companies and the more honest one for anyone holding stock, because it puts the cost of an item in the same period as the sale of it.

ACOS

Advertising cost of sale: ad spend divided by the revenue it produced, as a percentage. It is the inverse of ROAS, so 33 per cent ACOS and 3x ROAS are the same number said two ways. Amazon reports ACOS by default, which is why sellers there think in it and everyone else thinks in ROAS.

Amortisation

Spreading the cost of an intangible asset, such as software or a purchased brand, across its useful life. The intangible twin of depreciation.

Annual Accounting Scheme

A VAT scheme allowing one return a year with instalments in between, open to businesses under £1.35 million of taxable turnover. Less admin, but it delays the money if you are usually in a repayment position.

Annual Investment Allowance

Full tax relief in the year of purchase for most plant and equipment, up to £1 million a year. It is why the date of a capital purchase matters: bought a day before the year end it relieves a full year earlier than bought a day after.

Audit Trail

The chain of records joining a figure in the accounts back to the document behind it. It is what an inspection follows, and what is missing whenever a bank statement is doing the job of an invoice.

Average Order Value

Revenue divided by the number of orders over the same period. Useful for telling whether a promotion moved volume or basket size, and misleading alone: an AOV that rises because the small orders stopped is not growth.

Bad Debt

Money owed to you that you have decided you will not collect. Written off before the year end it reduces this year's profit; left hopeful on the ledger it does not.

Bad Debt Relief

The right to reclaim VAT you have already paid over on an invoice the customer never settled, once the debt is more than six months past due and written off in your books.

Balance Sheet

A statement of what the business owns and owes at one particular date, as against the profit and loss account which covers a period. Stock, cash, debtors, creditors and tax owed all live here.

Bank Feed

An automatic connection pulling transactions from a bank account into bookkeeping software. It speeds up coding and proves nothing on its own: a feed line is not a receipt.

Bank Reconciliation

Matching every line on the bank statement to a transaction in the books, so that neither contains anything the other does not. The single most effective check that nothing has been missed or entered twice.

Basis Period

The stretch of trading a Self Assessment return taxes. Since the 2024/25 reform, sole traders are taxed on the tax year itself, which is why new sole traders now simply use a 5 April year end.

Bookkeeping

The routine recording of transactions as they happen, as distinct from accounts, which are what those records are turned into once a year. Most expensive accounting problems are cheap bookkeeping problems left alone.

Break-Even Point

The level of sales at which contribution exactly covers fixed costs, so profit is nil. Expressed in units it is fixed costs divided by contribution per unit; in revenue it is fixed costs divided by the contribution margin.

Break-Even ROAS

The return on ad spend at which advertising exactly pays for itself: selling price divided by contribution per unit. A product selling at £45 with £24.90 of contribution breaks even at 1.81x, so a campaign reporting 3.1x is genuinely profitable and one reporting 1.5x is not.

Burn Rate

The rate at which a business consumes cash over and above what it brings in, usually stated monthly. Divided into the cash you hold, it gives runway.

C79

HMRC's monthly certificate of import VAT paid, and the evidence needed to reclaim it. The courier's invoice is not evidence, however clearly it shows the amount.

Capital Allowances

Tax relief on assets bought for the business, which are not deductible as ordinary expenses. Most small purchases are covered in full by the Annual Investment Allowance in the year of purchase.

Capital Expenditure

Money spent on something that will last, such as equipment or a vehicle, as opposed to revenue expenditure which is consumed in the period. The distinction decides whether a cost is deducted at once or relieved through capital allowances.

Cash Accounting Scheme

A VAT scheme under which you account for VAT when your customer pays rather than when you invoice, open below £1.35 million of taxable turnover. Helpful when customers are slow, irrelevant when they pay at the checkout.

Cash Basis

Recording income and costs when the money moves. The default for sole traders since 2024/25, and a poor fit for anyone holding stock, because it charges the whole of a shipment against the month you paid for it.

Cash Conversion Cycle

The number of days between paying a supplier and being paid by the customer for the same goods. Long cycles are why profitable shops run out of money, and shortening one is usually cheaper than borrowing.

Chargeback

A payment reversed by the customer's card issuer rather than by you. It takes back the sale, usually adds a fee, and unlike a refund it happens whether or not you agree.

Chart of Accounts

The list of categories transactions are coded to. Small and consistent beats large and precise: fifty accounts nobody can choose between produce worse numbers than fifteen that are always used the same way.

Closing Stock

The value of goods still unsold at the end of a period, at the lower of cost and net realisable value. It reduces cost of sales, so it raises profit, which is exactly why it has to be counted rather than estimated.

Commodity Code

The classification number that determines the duty rate and any import restrictions on a product. Getting it wrong is the commonest cause of a landed cost that does not match the quote.

Companies House

The registrar of UK companies. It receives accounts and the confirmation statement, and it is a separate body from HMRC with separate deadlines, which is why one filing does not satisfy the other.

Confirmation Statement

An annual filing telling Companies House that the registered details of a company are still correct. It is not accounts and it is not a tax return, and forgetting it is the commonest reason a solvent company gets a strike-off notice.

Consignment Stock

Goods held on your premises that you have not bought and do not own until they sell. They are excluded from your stock count, which is easy to forget when they are on the same shelf as everything else.

Contribution

What one sale leaves after every cost that varies with it: the goods at landed cost, fulfilment, and the payment and platform fees. It is the money available to cover fixed costs, and the number every pricing and advertising decision actually turns on.

Contribution Margin

Contribution expressed as a percentage of the selling price. A £45 product with £24.90 of contribution has a margin of 55.3 per cent.

Corporation Tax

The tax a company pays on its profits: 19 per cent up to £50,000, 25 per cent above £250,000, and an effective 26.5 per cent on the slice in between because of marginal relief.

Cost of Goods Sold

What the goods you actually sold cost you: opening stock plus purchases less closing stock. Not what you bought in the period, which is the substitution that makes a good month look terrible and a bad one look fine.

Creditors

Money the business owes and has not yet paid, mainly suppliers. The mirror image of debtors, and a source of free working capital when supplier terms are longer than your cash cycle.

Current Ratio

Current assets divided by current liabilities, a rough measure of whether a business can meet the next year's obligations. Above 1 is solvent on paper; stock-heavy businesses can pass it and still run out of cash.

Customs Declaration Service

HMRC's platform for import and export declarations, and the place postponed VAT statements are downloaded. The statements stay available for six months only, so they have to be collected monthly.

Cut-off

Deciding which side of a period end each transaction falls on. It is the single commonest reason a stock count refuses to agree with the books, because goods and paperwork routinely move on different days.

Days Inventory Outstanding

The average number of days stock sits before it sells, calculated as average stock divided by daily cost of sales. The part of the cash cycle a seller has the most direct control over.

Debtors

Money owed to the business and not yet received. Small for most online sellers, who are paid at the checkout, and large for anyone selling wholesale on terms.

Deferred Income

Money received for something not yet delivered. Gift cards, deposits and pre-orders are all deferred income, which makes them a liability rather than revenue until the goods go out.

Depreciation

Spreading the cost of a physical asset across the years it is used. It is an accounting figure, not a tax one: for tax it is added back and capital allowances are given instead.

Deregistration Threshold

The point at which a VAT-registered business may leave the scheme, currently £88,000 of taxable turnover in the coming twelve months. Lower than the registration threshold, so falling just under £90,000 does not on its own let you deregister.

Digital Platform Reporting Rules

The rules requiring marketplaces to report seller data to HMRC each year, in force since January 2024. They cover name, address, date of birth, tax reference, bank details and the number and value of sales each quarter, so a return that disagrees with the platform is visible without anyone opening an enquiry.

Director's Loan Account

The running record of money moving between a company and its director personally. Overdrawn nine months and a day after the year end and the company pays a section 455 charge on the balance.

Discovery Assessment

An assessment HMRC raises after the ordinary enquiry window has closed. It reaches back four years normally, six where the error was careless and twenty where it was deliberate.

Distributable Reserves

Accumulated profits after tax that a company is legally allowed to pay out as dividends. A dividend voted with none available is unlawful and gets recharacterised, usually as salary or a loan.

Dividend

A distribution of company profits to shareholders, paid out of distributable reserves and after corporation tax. Taxed personally at 10.75, 35.75 and 39.35 per cent above a £500 allowance, and it carries no National Insurance.

Dividend Allowance

The slice of dividend income taxed at nil, currently £500. It uses up part of the band it sits in rather than sitting on top of it.

Double Entry

The convention that every transaction is recorded twice, once as a debit and once as a credit, so the books balance. It is why a payout that does not reconcile cannot simply be plugged: the difference has to go somewhere and be explained.

Dropshipping

Selling goods a supplier ships directly to your customer, so you never hold stock. It removes the stock problem and not the VAT one: you are still the seller, and where the goods travel from decides the treatment.

Duty

A tax charged on goods entering the country, based on the commodity code and the country of origin. It is part of the cost of the goods, not an overhead, so it belongs in landed cost and therefore in stock.

Employer's National Insurance

The contribution an employer pays on wages, currently 15 per cent above £5,000 a year per employee. It is a cost of employing someone rather than a deduction from their pay, which is why the true cost of a hire is well above the salary.

Employment Allowance

A reduction of up to £10,500 a year in an employer's National Insurance bill. A single-director company with no other employees cannot claim it, which is the exception that catches most small companies.

EORI Number

The identifier a business needs to move goods into or out of the UK. Imports stall at the border without one, and it is separate from a VAT number even though it usually contains it.

Exempt Supplies

Goods and services outside VAT altogether, such as insurance and most financial services. Different from zero-rated: exempt sales do not count towards the registration threshold and do not carry a right to reclaim the VAT on related costs.

FIFO

First in, first out: the assumption that the oldest stock sells first, used to decide which cost attaches to a sale. The usual choice for goods bought in batches at changing prices.

Fixed Asset

Something the business owns and uses rather than sells, such as equipment, fixtures or a vehicle. It sits on the balance sheet and is written down over time rather than charged to the period it was bought in.

Fixed Costs

Costs that do not move with sales volume: rent, software, insurance, salaries. The number contribution has to cover before there is any profit.

Flat Rate Scheme

A VAT scheme paying a fixed percentage of gross turnover instead of output tax less input tax, open below £150,000. Businesses spending little on goods are classed as limited cost traders and pay 16.5 per cent, which almost always costs more than the standard method.

Freight Forwarder

An agent arranging the movement of goods and usually the customs entry with it. Their invoice mixes costs that belong in stock with costs that do not, so it needs splitting rather than coding whole.

Fulfilment by Amazon

Amazon's service holding, picking and shipping your stock. The stock is still yours and still counts at your year end, wherever in the network it physically sits.

Fulfilment Fee

The per-order charge for picking, packing and shipping. A variable cost, so it belongs in contribution rather than overheads.

Gateway Fee

The charge for taking a card payment, typically a percentage plus a fixed amount per transaction. The fixed part is what makes low-value orders disproportionately expensive.

Gift Card Liability

Money taken for vouchers not yet redeemed. It is a liability until someone spends it, and recording it as revenue overstates both profit and the tax on it.

Goodwill

The premium paid for a business above the value of its identifiable assets. It appears only when a business is bought, never when one is built.

Gross Margin

Gross profit as a percentage of revenue. A margin that slips with no price change nearly always means buying costs moved and prices did not follow.

Gross Profit

Revenue less cost of sales, before overheads. The first honest number in a set of accounts, and the one a seller can most directly change.

Gross Sales

What customers paid, before fees, refunds and reserves are taken out. It is your turnover; the money that reaches the bank is a different and smaller number, and using it as turnover understates the business.

Import VAT

VAT charged on goods entering the country, reclaimable by a registered business with the right evidence. Unlike duty it is not a cost of the goods, so it does not belong in landed cost.

Incoterms

The standard three-letter terms setting out who pays for carriage, insurance and duty and where risk passes. They also decide whether goods in transit belong in your stock count.

Information Notice

A formal request from HMRC for documents or information, which normally allows about thirty days. An extension asked for before the date is routine; one asked for afterwards is not.

Input VAT

The VAT you were charged on purchases, reclaimable against the VAT you charged. A valid VAT invoice is what makes it reclaimable, not the payment.

Interchange Fee

The part of a card fee passing to the customer's bank. Invisible on a blended rate and itemised under interchange-plus pricing, which is why the two look so different on a statement.

Inventory

Goods held for sale, valued at the lower of cost and net realisable value. An asset until sold, at which point it becomes cost of sales.

IOSS

Import One Stop Shop: a single EU registration for charging VAT at the checkout on consignments up to €150 sent into the EU. It clears customs faster and spares the customer a handling fee at the door.

Journal

A manual entry in the books, used for anything that is not a bank or invoice transaction: accruals, stock movements, payroll and the reconciliation of a payout.

Landed Cost

What a unit truly costs by the time it reaches you: supplier price plus freight, duty, clearance and handling. A supplier invoice alone commonly understates it by a third, which is why prices set off it are quietly too low.

Lifetime Value

The total contribution expected from a customer across every order they will place. It justifies paying more than one order's contribution to acquire someone, and only when the repeat rate behind it is measured rather than assumed.

Limited Cost Trader

A flat rate scheme business spending less than 2 per cent of turnover, or less than £1,000 a year, on goods. It pays 16.5 per cent of gross turnover, which leaves almost nothing of the scheme's advantage.

Making Tax Digital

HMRC's programme requiring digital records and software filing. Already in force for VAT, and from April 2026 for income tax where qualifying income is £50,000 or more, measured gross before expenses.

Margin Scheme

A VAT scheme charging tax on the margin rather than the full price, used for second-hand goods, antiques and art. Valuable to resellers buying from private individuals, where there is no input VAT to reclaim.

Marginal Relief

The mechanism smoothing corporation tax between the small and main rates. Its arithmetic means profits between £50,000 and £250,000 are effectively taxed at 26.5 per cent, higher than the 25 per cent headline rate above it.

Markup

The amount added to cost to reach a selling price, as a percentage of cost. Routinely confused with margin, which is a percentage of price: a 100 per cent markup is a 50 per cent margin.

Merchant of Record

The party legally selling to the customer and so responsible for the VAT. On some marketplaces it is the platform rather than you, which changes both the VAT treatment and what your own turnover is.

Mileage Allowance

The approved rate for business travel in your own vehicle: 55p a mile for the first 10,000 business miles in the year and 25p after that. It needs a log of date, purpose and distance, not a total at the year end.

Minimum Order Quantity

The smallest quantity a supplier will produce or ship. It is the main reason working capital and stock levels are set by the supplier rather than by demand.

National Insurance

A separate charge on earnings from income tax. Employees pay 8 per cent then 2 per cent, the self-employed pay Class 4 at 6 per cent then 2 per cent, and employers pay 15 per cent above £5,000.

Net Profit

What is left after every cost including overheads, and before or after tax depending on which line you are reading. The number people quote and the one they can least often reconcile.

Net Realisable Value

What stock could actually be sold for less the cost of selling it. Stock is valued at the lower of cost and this figure, applied line by line so a healthy line cannot prop up a dead one.

Nil Return

A return filed showing no activity. Still required: a VAT return with nothing on it must be filed on time, and missing it counts towards penalty points exactly as a real one would.

Nominal Code

The number identifying an account in the chart of accounts. The label matters more than the number, because coding decisions are made by whoever reads the label.

One Stop Shop

A single EU VAT registration covering distance sales to consumers across member states, filed quarterly in one country. Records for it must be kept for ten years, far longer than anything else a seller holds.

Opening Stock

The value of goods held at the start of a period, which must equal the closing stock of the period before it. Two figures that do not match are the commonest error in a second year of trading.

Operating Profit

Gross profit less overheads, before interest and tax. It shows whether the business itself works, separately from how it is financed.

Output VAT

The VAT you charged customers and owe to HMRC. It sits in your bank account looking exactly like your money until the return is filed.

Overheads

Costs of running the business that do not vary with any individual sale: rent, software, professional fees, salaries. Contribution has to cover them before there is profit.

P11D

The annual return of benefits provided to directors and employees, due 6 July after the tax year. Anything the company pays for that has a private element usually belongs on it.

PAYE

Pay As You Earn, the system for deducting income tax and National Insurance from wages at source. Payment is due by the 22nd of the month following the one it relates to.

Payment on Account

An advance instalment of the next Self Assessment bill, due 31 January and 31 July, each half of the previous year's liability. They begin the first time a bill passes £1,000, which is why a second tax year often costs half as much again as the first.

Payout

The money a platform actually transfers to your bank, after fees, refunds, chargebacks and reserves. It is the settlement of many transactions, not a sale, and treating it as one understates turnover and hides every deduction inside it.

Personal Allowance

The slice of income taxed at nil, currently £12,570. It tapers away by £1 for every £2 of income above £100,000, which creates an effective 60 per cent band between £100,000 and £125,140.

Place of Supply

The rules deciding which country's VAT applies to a sale. For goods it usually follows where they move from and to; for digital services it follows the customer.

Postponed VAT Accounting

Accounting for import VAT on the VAT return instead of paying it at the border and reclaiming later. It removes the cash flow cost entirely, and needs the monthly statement downloaded as evidence.

Pre-registration VAT

VAT reclaimable on things bought before registering: goods still held at registration going back four years, and services going back six months. Frequently missed on the first return, where it is often worth a great deal.

Prepayment

A cost paid in advance and spread across the periods it covers, such as annual insurance or software billed yearly. The opposite of an accrual.

Profit and Loss Account

The statement of income and costs over a period, ending in profit. Distinct from the bank balance, which is why a profitable business can have no money.

Quick Ratio

Current assets excluding stock, divided by current liabilities. A harder test than the current ratio and a more useful one for a seller, because it refuses to count stock as though it were cash.

Reconciliation

Proving that two independent records of the same thing agree, and explaining every difference. Bank to books, payout to sales, stock count to ledger.

Reduced Rate

The 5 per cent VAT rate, applying to a short list including domestic fuel, children's car seats and some energy-saving materials. Rarely relevant to a seller, and expensive to assume.

Referral Fee

A marketplace's commission on a sale, usually a percentage of the total including shipping. Variable with the sale, so it belongs in contribution.

Refund

A sale reversed with your agreement. It reduces revenue rather than adding an expense, and the fees on the original sale are often not returned with it.

Reserve

A portion of your money a payment processor holds back against future refunds and chargebacks. It is still your money and belongs on the balance sheet, not lost somewhere in the difference between sales and payouts.

Retained Earnings

Profits kept in a company rather than distributed. The source dividends are legally paid from, and the reason a company can defer personal tax in a way a sole trader cannot.

Return Rate

Returns as a percentage of orders. Worth calculating per product rather than overall, because a single line with a sizing problem can carry the whole figure while everything else behaves.

Reverse Charge

The rule making the buyer rather than the seller account for VAT, common on services bought from overseas suppliers. You charge yourself the VAT and reclaim it in the same return, so it usually nets to nothing and still has to be shown.

ROAS

Return on ad spend: revenue attributed to advertising divided by the cost of it. It is not profitability, because revenue is not contribution, which is why it has to be judged against a break-even ROAS rather than against a round number.

Rolling Twelve Months

Any twelve consecutive months, which is the window the VAT registration threshold is measured over. Not your financial year, and not the tax year: it is tested afresh at the end of every month.

Runway

How long the cash on hand lasts at the current burn rate. Measured in months, and worth knowing before a stock order rather than after it.

Section 455 Charge

The tax a company pays on a director's loan still outstanding nine months and a day after the year end. It is 33.75 per cent on loans made before 6 April 2026 and 35.75 per cent on those made on or after it, and it is refundable once the loan is repaid.

Self Assessment

The system under which individuals report income and pay tax, filed by 31 January after the tax year. Registration is due by 5 October following the tax year you started.

Settlement

The batch in which a processor pays over the transactions it has collected. The reason a sale and its money land in different periods, and the thing a payout reconciliation bridges.

Shrinkage

Stock that is gone without a sale: damage, loss, theft or miscounting. Found by counting, never by the system, because the system believes what it was told.

Simplified Invoice

A shortened VAT invoice permitted for supplies up to £250, showing the supplier's details and VAT number, the date, a description, the rate and the total including VAT. Most retail receipts already qualify.

SKU

Stock keeping unit, the code identifying one distinct sellable item. Margins are made and lost at SKU level, and averages across a catalogue reliably hide the lines that are losing money.

Standard Rate

The 20 per cent VAT rate, which applies to most of what a UK seller sells. It is the default rather than a category you opt into, so the expensive assumption is the other way round: treating something as zero-rated or exempt without checking.

Stock Take

A physical count of everything you own, wherever it sits, valued and signed. As close to the year end as possible, because a count taken a fortnight either side has to be reconciled back.

Stock Turnover

How many times stock is sold and replaced in a year, calculated as cost of sales divided by average stock. Low turnover ties up cash; very high turnover usually means lost sales.

Suspense Account

A holding account for a difference that is real but not yet explained. Legitimate for days, a problem after weeks, and never something to close a year end with.

Tax Point

The date a supply happens for VAT, which decides the return it falls in. Usually the earlier of the invoice date and the payment, not the date the goods arrive.

Trading Allowance

The first £1,000 of casual or self-employed income, which need not be declared. Measured on income, not profit, so £3,000 of sales costing £2,800 means registering despite £200 of profit.

Trial Balance

A list of every account balance, debits equalling credits. The starting point for a set of accounts and the quickest way to see something coded somewhere strange.

Turnover

Total sales before any deduction. For VAT purposes it is taxable turnover that counts towards the threshold, which excludes exempt sales and includes zero-rated ones.

Unit Economics

What a single sale earns and costs, before any question of volume. If they do not work, scale makes the loss larger rather than smaller.

Variable Costs

Costs that move with each sale: goods, fulfilment, and payment and platform fees. Revenue less variable costs is contribution.

VAT

Value Added Tax, charged on most goods and services, collected by the seller and paid over to HMRC. It is never the seller's money, however much it looks like it in the bank.

VAT Invoice

The document that makes input VAT reclaimable. It must show the supplier's VAT number, an invoice number, the date and tax point, a description, the VAT rate and the VAT amount separately.

VAT Registration Threshold

£90,000 of taxable turnover in any rolling twelve months. Crossing it means telling HMRC within thirty days of the month end, and registration then takes effect from the first day of the second month after.

VAT Return

The periodic return of output tax less input tax, due one month and seven days after the period end. Filing and paying are the same deadline.

Working Capital

Current assets less current liabilities: the money tied up in running the business day to day. In a stock business most of it is sitting on a shelf.

Write-Down

Reducing the carrying value of stock to what it can actually be sold for. It increases cost of sales and so reduces tax, in the year the stock went bad rather than the year it is finally scrapped.

Year End

The date a set of accounts is drawn up to. Sole traders now align to 5 April; a company chooses its own, defaulting to the anniversary of incorporation.

Zero-Rated

Taxable at 0 per cent, which is not the same as exempt. Zero-rated sales count towards the registration threshold and carry a full right to reclaim input VAT, which is why some zero-rated businesses register voluntarily to be repaid.