SaaS glossary

ACV

Annual contract value: what one customer's contract is worth over a year. A £200 a month subscription is a £2,400 ACV, and whether it is billed monthly or annually upfront changes the cash profile, not the value.

Additional Information Form

The form every R and D claim must file before or with the tax return: projects, the uncertainty, the advance sought and costs by category. A return that claims relief without one is treated as if the claim were never made.

Annual exempt amount

The slice of capital gains everyone can take tax free each year, £3,000 in 2026/27. In the worked EMI exit it comes off the £50,000 gain before the 18 per cent rate applies.

Annualised retention

Monthly retention compounded to a year: the rate to the twelfth power, never twelve times the monthly loss. The demo company's 98.7 per cent monthly NRR is 85.5 per cent a year, and quoting the monthly figure where an annual one belongs is the oldest flattering trick in SaaS.

ARPA

Average revenue per account, a month: MRR over customers. The demo company's 200 customers on £40,000 of MRR pay £200 each. Watch it move: rising ARPA with flat logos means expansion is working.

ARR

Annual recurring revenue: MRR times twelve, the run rate the company is currently earning at. The demo company's £40,000 of MRR is £480,000 of ARR. Not the same as billings and not the same as recognised revenue; diligence checks all three tie together.

BADR

Business asset disposal relief: capital gains tax at 18 per cent instead of up to 24, on up to £1 million of lifetime gains. EMI option holders qualify two years from grant with no minimum stake, which is most of why EMI paperwork is worth doing properly.

Billings

What was invoiced in a period, regardless of when it is earned. Annual upfront deals push billings above revenue in the month they land; the excess sits as deferred income until earned.

Bookings

The value of contracts signed in a period, before any invoicing at all. Bookings lead billings, billings lead revenue, and confusing the three is how decks get laughed out of diligence.

Burn multiple

Cash burned per pound of net new ARR added: burn divided by net new ARR. Under one is excellent, over two is expensive growth. It is the efficiency number investors now ask for by name.

Burn rate

Cash out the door per month, net of revenue collected. The number that turns into a date: divide the bank balance by it and you have the runway.

CAC

Customer acquisition cost: all of sales and marketing spend, salaries included, over customers won. The demo company spends £9,000 a month for nine logos, so CAC is £1,000. Leaving salaries out is the classic flattering base.

CAC payback

Months of a customer's gross margin needed to earn the CAC back: 6.25 months in the demo on the honest, gross-margin basis, and 5.0 on the flattering revenue basis. Under twelve is healthy for SMB SaaS.

Churn, logo

Customers lost in a month over customers at the start. Counts heads, not money: losing one £50 account and one £500 account is the same logo churn and very different revenue churn, which is why both get measured.

Churn, revenue

MRR lost from cancellations over opening MRR, 2.2 per cent a month in the demo. The denominator of LTV and the leak the whole retention conversation is about.

Claim notification

The advance notice HMRC requires from first-time R and D claimants, or anyone who has not claimed in three years: due within six months of the end of the period of account. Miss it and there is no claim for that period at all.

Cliff

The period before any options vest at all, commonly a year. An engineer leaving in month eleven takes nothing; in month thirteen, a quarter. The register must compute it, not remember it.

Cohort

Every customer who started in the same month, tracked together over time. Cohort curves are how retention stops being one blended number and starts showing whether the product is actually getting stickier.

Competent professional

The person whose judgement defines an R and D claim: someone qualified and experienced in the field who says the uncertainty could not readily be resolved from public knowledge. HMRC expects them named and able to discuss the work fluently.

Contraction MRR

Revenue lost to downgrades from customers who stayed, £160 a month in the demo. It hides inside net figures, which is why the bridge tracks it separately from churn.

CSOP

Company share option plan: the scheme for companies that outgrow EMI. Options up to £60,000 per employee, exercised free of income tax after three years. Less generous than EMI, far better than unapproved.

Deferred income

Cash collected for service not yet delivered, a liability. With 40 per cent of the demo company's customers billed annually, the steady balance is £96,000: real money the P and L has not earned yet.

Dilution

The shrinking of existing stakes when new shares are issued. A round that grows the pie can still shrink your slice; the cap table calculator shows each round's before and after.

Disqualifying event

Anything that breaks EMI status after grant: the holder leaving, working time dropping below the threshold, the company being taken over. The favourable tax survives only if the option is exercised within 90 days.

Economic nexus

The US doctrine that selling enough into a state creates a tax obligation there, no office needed: commonly $100,000 of sales or 200 transactions. Several states tax SaaS, and the thresholds accrue quietly.

EMI

Enterprise management incentives: the small-company share option scheme where, done properly, no income tax falls at exercise and gains take CGT treatment. The worked holder keeps £41,540 against £29,000 unapproved.

ERIS

Enhanced R and D intensive support: for loss-makers spending at least 30 per cent of total costs on R and D. An 86 per cent extra deduction and 14.5 per cent credit, worth up to 26.97p per pound, £48,546 on the demo budget.

ERS annual return

The employment related securities return, due online by 6 July after each tax year, nil years included. For options granted from 6 April 2024 it is also how EMI grants are notified: a grant never notified is not an EMI option.

Expansion MRR

New revenue from existing customers: upgrades, seats, usage. £520 a month in the demo. The ingredient that separates NRR from GRR, and the cheapest growth a SaaS company has.

Gross margin

Revenue less the cost of serving it: hosting, support, third-party licences. The demo company runs 80 per cent. Every honest unit economic runs on margin, not revenue, because you cannot spend the hosting bill twice.

GRR

Gross revenue retention: what survives churn and downgrades with expansion excluded, capped at 100. The demo holds 97.4 per cent monthly, 72.9 per cent annualised. The harsher, more honest twin of NRR.

LTV

Lifetime value: monthly gross margin per customer over the monthly revenue churn rate, £7,273 in the demo. It divides by the smallest number in the company, so treat it as a direction, not a fact.

LTV to CAC

Lifetime value over acquisition cost, 7.3 in the demo. Above three is the conventional floor; the trend matters more than the level, and both lie if either ingredient does.

Merchant of record

A reseller who becomes the legal seller of your software and carries the global VAT and sales tax problem for a percentage. Worth pricing once consumer volume abroad is real.

Merged R and D scheme

The single R and D regime for periods from 1 April 2024: a 20 per cent expenditure credit, taxable, netting 15 per cent for profit-makers and about 16.2 for loss-makers. On the demo's £180,000 budget: £36,000 gross, £27,000 or £29,160 net.

MRR

Monthly recurring revenue: the subscription revenue the company enters the month already owning. The demo runs £40,000. One-off services and onboarding fees stay out, however tempting.

Net new MRR

New plus expansion, less contraction and churn: £1,280 a month in the demo, which is 3.2 per cent monthly growth. The single line that says whether the machine is working.

NRR

Net revenue retention: what last month's customers are worth this month, expansion included. The demo runs 98.7 per cent monthly, which compounds to 85.5 per cent a year. Over 100 means the base grows without sales; under 100 means growth is rented.

OSS

The EU's one stop shop for VAT on consumer sales: one non-Union registration, one quarterly return in euros, each consumer charged their own country's rate. For a UK SaaS business there is no threshold; the first EU consumer sale triggers it.

Place of supply

The VAT rule that decides which country's tax applies. Business customers: where the customer belongs. Consumers of digital services: where the consumer lives. Every cross-border invoice hangs off this one decision.

Price rise breakeven

The churn a price rise can absorb before it loses money: the rise over one plus the rise, so a 10 per cent rise survives up to 9.09 per cent of customers leaving. The demo's rise lands MRR at £42,680 even after 3 per cent walk.

R and D intensity

Qualifying R and D spend over total expenditure. At 30 per cent or more, a loss-making company reaches ERIS rather than the merged scheme, with a one-year grace period once qualified. Growing sales spend is how companies quietly fall out.

Reverse charge

The mechanism for business sales abroad: you invoice without UK VAT, state the reverse charge on the invoice, and the customer accounts for tax in their own country. The evidence is their validated VAT number, kept on file.

Rule of 40

Growth rate plus profit margin, in points. The demo grew ARR 37.1 per cent at minus 5 per cent EBITDA: a score of 32.1. Below forty is a conversation, not a verdict, about whether the losses are buying enough growth.

Runway

Months until the cash runs out at the current burn: bank balance over monthly burn. The number every other number answers to, and the one to re-read before every hiring decision.

SEIS and EIS

The venture reliefs that make UK angels write cheques: 50 per cent income tax relief on up to £250,000 a year under SEIS, 30 per cent under EIS, plus CGT advantages. Company-side conditions apply and break messily; get advance assurance before the round.

Small profits rate

Corporation tax at 19 per cent on profits up to £50,000, tapering by marginal relief to the full 25 per cent at £250,000. Loss-making SaaS companies meet it later, when the carried losses finally run out.

Unapproved options

Options with no scheme protection: the whole spread taxed as employment income at exercise. The worked holder keeps £29,000 instead of £41,540, and the company pays £7,500 employer NIC. The default to avoid defaulting into.

VAL231

The form that agrees your share valuation with HMRC before an EMI grant: actual and unrestricted market value, usually anchored to the last round with a minority discount. The agreement protects grants made within 90 days.

VAT registration threshold

Compulsory registration at £90,000 of taxable turnover in any rolling twelve months. Funded SaaS companies usually pass it in year one and often register early anyway to recover VAT on costs.

Vesting

The schedule on which options become exercisable, commonly four years with a one-year cliff. Vesting is contract, not tax law: good and bad leaver terms are whatever the agreement says, and diligence reads them all.

Working-time declaration

The statement each EMI holder signs at grant confirming they work 25 hours a week, or 75 per cent of their working time, for the company. The piece of paper diligence most often finds missing, and the scheme fails without it.