Tax

Capital gains: If you sell a chargeable asset for a profit (after deducting expenses and releifs see capital gains calculation) you make a capital gain.

Capital gains calculation: Term used to describe the calculation of the taxable "profit" or allowable "loss" you made on selling a chargeable asset. Broadly it is sale proceeds, less cost, less indexation allowance from the date you bought it to 5 April 1998.

Capital gains expenses: These include costs of buying and selling an asset. For example, fees charged by stockbrokers or auctioneers and any initial valuation costs. These expenses can be deducted in the calculation of the capital gain or loss on the disposal of the asset.

Capital gains indexation allowance: An adjustment for inflation between the date you bought an asset and the date it is sold. For individuals, this allowance was frozen with effect from 6 April 1998.

Capital losses: If you sell a chargeable asset and the result of the capital gains tax calculation is a loss rather than a profit, that is a capital loss.

Capital gains tax: Tax charged on capital gains that you have made.

Carry back: Sometimes you can claim for a loss you have made, or for a payment you have made, to be deducted from your income or capital gains in a tax year earlier than that in which the loss or payment was made. For example you may claim for a trading loss to be set against your income in the tax year before that in which you made the loss.

Carry forward: Sometimes losses cannot be fully tax relieved in the year they were made. The unused amount is carried forward for tax relief in a later tax year. Some unused reliefs, such as unused personal pension relief can be carried forward, but only for a specific period of time.

Case (court): Where you dispute the meaning of the tax legislation, the matter can be resolved in the law courts. The outcome is then known as a tax case.

Casual earnings: Income you get from irregular work.

Cash equivalent value: You might have taxable income in the form of an asset, or the right to use an asset, rather than in cash. There are rules for determining the amount of the taxable income. The taxable amount is called the cash equivalent value.

Cash fraction: If you are allotted shares (such as from a scrip dividend or where you receive shares in a new company following a takeover) your allocation may not be a whole number of shares. The company may arrange for all the fractions of shares to be sold, and the proceeds distributed between those who were entitled to fraction of shares. The amount you receive is called a "cash fraction".

Certificate of tax deposit: If you have, or think you may have, a tax liability, you can buy a Certificate of Tax Deposit in advance to pay the liability. These are purchased from the Inland Revenue. You receive interest on the funds from the date of purchase to the date the liability becomes due. You can also withdraw the funds in cash, but you will receive a lower interest rate. The interest is taxable. (Back to top)

Chargeable asset: Assets which, when sold, are subject to capital gains. This includes assets such as shares, second homes, investment properties, works of art worth more than £6,000. Some assets are not liable to capital gains tax when sold. Examples are your home (subject to certain conditions regarding periods of absence and business use), motor cars, gilts and investments held in Personal Equity Plans (PEPs).

Chargeable business assets: Assets which are used in a business, and would be subject to capital gains tax if they were disposed of. An example is your business premises. Investments, such as shares, owned by a business are chargeable assets, but not chargeable business assets.

Chargeable event: A chargeable event may occur when cash or benefits are received from a life insurance policy, life annuity or capital redemption policy.

Chargeable gains: A chargeable gain is the profit you made on the disposal of a chargeable asset, calculated after deducting all allowable expenses and reliefs.

Chargeable premiums: If you receive a premium for the grant of a lease of land and property for 50 years or less, you will be taxed on a proportion of the premium as if it were additional rent that you receive. The chargeable premium depends on the term of the lease. It is the premium you receive, reduced by 2% for each full year of the lease other than the first. Thus if you grant a 10 year lease, you will be taxed on 82% of the premium as additional rent.

Charitable covenants: Regular payments made to a registered charity under a written deed. The charity reclaims the basic rate tax you have deducted and you receive higher rate tax relief if you have sufficient income.

Charity: An organisation which raises funds to pass onto people in need, for educational purposes, the advancement of religion or for the general benefit of the community.

Child minding expenses: Fees paid for someone to look after your children whilst you are at work. They are not tax allowable.

Children: People under the age of 18. May also be used to refer to your son or daughter, even if aged 18 or over.

Class: national insurance contributions are divided into four classes. The class you pay depends on whether you are an employee, are selfemployed or are paying voluntary contributions.

Class 1 national insurance contributions: national insurance contributions charged on your earnings if you are an employee. They grant entitlement to contributory social security benefits. Employers also pay class 1 and 1A national insurance contributions, but these do not grant entitlement to social security benefits.

Class 2 national insurance contributions: Weekly national insurance contributions that you must pay if you are selfemployed or in partnership. They grant you entitlement to some contributory social security benefits.

Class 3 national insurance contributions: Weekly national insurance contributions that you may pay voluntarily to build up entitlement to some contributory social security benefits.

Class 4 national insurance contributions: national insurance contributions charged on your business profits if you are selfemployed, and on your share of partnership business profits if you are trading in partnership. They do not grant you any entitlement to social security benefits.

Clogged losses: Clogged losses are losses which can only be set against gains of certain types. These are:

• Losses on disposals to connected persons. These losses can only be set against gains on disposals to the same connected person.
• Losses transferred to you by trustees when you become absolutely entitled to settled property, but only where the transfer occurred after 15 June 1999.
  Although this is the general rule there are exceptions. This area is complex and you may want to consider contacting your Tax Adviser for advice.

Close company: A company which is controlled by 5 or fewer shareholders, where the term "shareholders" include immediate members of their family. The majority of private companies are "Close". Ask the company auditors for confirmation if you are not sure.

Commonwealth citizen: Someone who is a citizen of a Commonwealth country.

Company car: A car which is provided for you by your employer. (Back to top)

Compensation: A sum of money you receive if you give something up such as your employment or the right to use an asset.

Computer software: If you are in business and you bought business software with a useful economic life of less than 2 years, the cost of the software is fully tax deductible as a business expense in the tax year of purchase. Otherwise, the software is a capital purchase and you can claim capital allowances as if the software was an item of plant and machinery.

Concession: Something which the Inland Revenue allows in practice, although it would not strictly be allowed under the terms of the tax legislation. For example luncheon vouchers of up to 15p per day are tax free under an Inland Revenue concession.

Contractedin: You are contractedin if you are not a member of your employer's contractedout pension scheme and do not contribute to an appropriate personal pension plan. You will receive a state earnings related pension if your earnings exceed the national insurance lower earnings limit.

Contractingout: The act of opting out of the state earnings related pension scheme (SERPS), either through membership of the employer's contractedout pension scheme or by contributing to an appropriate personal pension plan.

Contributions Agency: An agency that was part of the of the DSS (Department of Social Security) and which, until 6 April 1999 was responsible for dealing with the collection and recording of national insurance contributions. On 6 April 1999 it was merged with the Inland Revenue, becoming the National Insurance Contributions Office (NICO).

Contributions: Sums of money which are paid towards something. Commonly used to refer to payments into schemes, such as pension schemes, Save As You Earn (SAYE) schemes and so on.

Convertibles: Term used for company loan stock which at certain predetermined dates can be exchanged or "converted" into something else, usually into ordinary shares in the company. The terms of the conversion are usually set when the loan stock is issued, and the value of the loan stock will move in line with the value of the shares.

Corporate bonds: These are issued by companies when they want to raise capital. They are loans to the company which are repayable at or between set dates.

Council tax: Payable to your local council in return for services and amenities. The amount payable is determined by the value of your house and what council tax band it falls into.

Covenants: Regular annual payments paid using funds from your taxable income under a legally binding agreement. Most commonly used for regular payments to charities, but may also be used for certain payments in connection with your business, such as payments to retiring partners.

Crystallised: If a deferred gain is crystallised it becomes chargeable to capital gains tax. A deferred gain will be crystallised if one of several defined events occur. For example a gain deferred under the enterprise investment scheme (EIS) deferral relief scheme will crystallise if you sell your EIS shares.

Cumdividend: If you sell a share just before the date you become entitled to a dividend, the share is sold cumdividend. The purchaser of the share(s) then receives the dividend.

Current-year basis: If you are entitled to income in 1999/2000, it is taxed in 1999/2000. With the introduction of self assessment, all income is generally taxed on this basis. The currentyear basis is modified when it is applied to businesses. The business profits taxable in 1999/2000 are normally the profits of the accounting year ending in 1999/2000.