The Tax Research glossary seeks to explain the terms used on this blog that refer to more technical aspects of economics, accounting and tax. It recognises that understanding these terms is critical to understanding the economic issues that affect us all the time.

Like the rest of the Tax Research blog, this glossary is written by Richard Murphy unless there is a note to the contrary. It is normative approach and reflects post-Keynesian, heterodox economic opinion with a bias towards modern monetary theory. The fact that many items in that sentence are hyperlinked shows that they are explained in the glossary.

The copyright notices pertaining to the Tax Research blog apply to this glossary.

The glossary is designed to achieve three goals:

  • It seeks to provide a short, hopefully straightforward, definition of what a term might mean.
  • It then seeks, when appropriate, to explain what the term means within the context in which it is used. This is meant to elaborate the definition to add to understanding.
  • It then critiques the term, explaining, if appropriate, what the weaknesses inherent in the term or the situation it describes are. The aim here is to empower the reader to understand the issues behind the nonsense that most professions create around their activity to provide them with a mystique that they rarely deserve and which often hides what they are really up to.

The glossary is not complete. It will grow over time. If you think there are entries that need adding please let me know by emailing Please also feel free to suggest edits. The best way to do this is to copy an entry into Word and then send me a track-changed document indicating the changes that you suggest.

Because of the way in which it is coded this glossary automatically cross refers entries within itself and to the blog that it supports and within the glossary itself but if you think a link is missing please let me know.

Finally, if you like this glossary then you might like to buy me a coffee. It has required the support of a fair few to write it. You can do so here.

Glossary Entries

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A person, usually but not always qualified by examination, who prepares accounts, offers taxation and commercial advice and who may audit the accounts of companies and other limited liability entities when that is required by law and they are qualified to do so. The term is unregulated in the UK and so may be used by anyone, whether they have an accounting qualification or not.

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Accounting Data

The books and records and associated information and explanations, both internally generated and supplied by third parties with whom the entity contracts, that are required to prepare a set of accounts.

Accounting data is referenced via the database created by double entry book-keeping and is the foundation of all accounts and financial statements.

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Accounting reference date

The date to which a reporting entity prepares its accounts.

Very commonly accounts are prepared for annual periods, but this need not be the case and for internal reporting purposes a company can choose to prepare accounts for whatever period it wishes, with monthly reporting being the most commonplace. Retail enterprises more commonly work on four-week cycles, however, and for this reason often have 52-week annual reporting periods with the accounting reference date moving slightly each year as a result.

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Accounting Standards

Accounting standards are regulations governing the way in which transactions and balances are reported within the accounts of companies and other reporting entities, usually within a jurisdiction that issues them as part of its generally accepted accounting principles, but sometimes internationally, as in the case of standards issued by the International Accounting Standards Board.

Most accounting standards are subject to criticism because:

  • They are heavily influenced by or even issued by the accounting profession and they are not objective with regard to their content.
  • They are intended to produce data for providers of capital to a reporting entity and no other stakeholder of it (see separate entity). They do not result in useful information being provided for most users of accounts as a result.
  • The data is focused on short-term decision making i.e., whether to engage with the entity or not, and not on long-term stewardship issues.
  • Many of the concepts used (such as mark-to-market accounting and goodwill) are alien to most users of accounts who are left unable as a result to interpret what the accounts produced using the standards actually mean.
  • Accounting standards setters have refused to meaningfully address with issues of concern to civil society such as country-by-country reporting and accounting for climate change.
  • Too much discretion is provided to directors and auditors on how data is presented.

The usefulness of many accounting standards and the financial statements of any reporting entity based on them is open to question as a result.

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Accounts are the annual published statements issued by a company or other reporting entity in accordance with the legislation and regulation of the country in which it is incorporated for the benefit of shareholders and others (if they are permitted access under local law) who wish to appraise the financial performance of a limited liability company or other limited liability entity such as a limited liability partnership.

Accounts can also be called financial statements.

If the company is registered on a stock exchange which requires compliance with the rules of the International Accounting Standards Board, then the accounts will also have to comply with their rules. Otherwise, they will comply with locally issued accounting standards.

Accounts will normally include:

  • A statement from the directors of the company providing an overview of the trading of the entity for the year
  • A profit and loss account or income statement showing its income and expenditure during the period and its net profit plus an estiamate of taxation liabilities that will arise from them.
  • A statement of other income, usually relating to unrealised profits and losers arising in a period.
  • A cash flow statement showing how it used the net cash surplus or deficit that it generated during the course of the year.
  • A balance sheet or statement of affairs showing its total assets and liabilities at the accounting reference date as represented by the total net investment by the shareholders.
  • A statement of the change in the equity (or shareholders' funds) invested in the business during the year including changes in share capital and dividends paid.
  • Notes to the accounts which explain each of these statements.

Depending upon a) the choice of the members of the company and b) its size the accounts may require an audit.

In countries like the UK the accounts of the company must legally be supplied to its shareholders and be adopted in an annual general meeting (unless the members decide not to have one in the case of smaller companies).

Every company in the UK must also file its accounts with the Registrar of Companies. However, the accounts that need be filed do not need to include the report of the directors, the profit and loss account, cash flow statement (if there is one), statement of other income and most notes. This usually makes the data on public record for these companies, which together represent more than 90% of all reporting entities, very largely meaningless. Moves are afoot to change this in the UK.

A characteristic of tax havens and secrecy jurisdictions is that they do not require that accounts be placed on public record. This is a major reason why many US states, such as Delaware and Nevada, are considered to be secrecy jurisdictions.

Economic justice campaigners think that the publication of accounts on public record is a quid pro quo fur the benefit of limited liability granted to shareholders in a limited liability company, which privilege effectively collectivises their losses. Publication of accounts is a way to identify those abusing this privilege.

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Accruals accounting

When the accruals basis of accounting is used a best attempt is made to match the income earned during a period with the expenses incurred to generate that revenue regardless of when the resulting cash flows that arise as a consequence are received or paid. This is considered to reflect a matching principle that should result in the most accurate available representation of a reporting entity's performance during a period and its resulting financial position as reflected on its balance sheet.

Using the accrual basis, revenue is recognised when it is earned i.e. when it is contractually due, and not when cash is received (albeit in some cases they might be the same). Likewise, expenses are recognised when they are incurred, regardless of when the actual payment is made.

The accruals basis requires recognition of a number of matters that can be ignored in cash flow accounting, including:

- Tangible fixed assets, which are expensed over time through depreciation charges;
- Intangible fixed assets, which are expensed over time through amortisation charges;
- Stock and work in progress, which represent the value of items bought for use in a trade but not yet matched with revenue earning activity;
- Trade debtors, i.e sums owing by customers;
- Prepayments, i.e. expenditure incurred where the benefit has not yet been received e.g. on insurance premiums or rents paid in advance;
- Trade creditors, i.e. sums owing to suppliers;
- Accruals, i.e. liabilities owing for services supplied but not yet invoiced e.g. on services charged in arrears;
- Income in advance i.e. sums paid for work to be done which has not yet been delivered e.g. deposits;
- Loans;
- Share and other capital.

They balance sheet of a reporting entity does, in effect, only exist because of the adoption of the accruals basis of accounting.

The estimation of some of the items noted above might involve a considerable degree of judgement. Accruals accounting is inherently less objective than cash flow accepting as a result, even if it is considerably more useful in measuring an approximation to economic income.

Accrual accounting is required by almost all generally accepted accounting principles (GAAP) such as those issued by the International Financial Reporting Standards Foundation. It is also usually used as the basis of taxing those earning income from trading in most countries although some, like the UK, allow smaller businesses to adopt a cash flow basis instead. This measures income as the surplus of cash generated during a period from trading activities.

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Aggressive tax avoidance

A term used by those who try to argue that some tax avoidance is acceptable by seeking to rank schemes so that some are worse than others.

Aggressive tax avoidance is a term applied to the use of complex schemes of uncertain legality to exploit taxation loopholes. Those using such schemes are usually aware of the risk that they are taking and seek to mitigate it by taking professional advice that seeks to exonerate their approach. This is no guarantee that a tax avoidance scheme actually works, as many have discovered.

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Amortisation is an accounting measure that is intended to represent the gradual decrease in the value of a an intangible fixed asset over time.

It is important to note that amortisation differs from depreciation, which is charged in tangible fixed assets such as plant and equipment, IT, buildings and so on.

Intangible assets include:

- Goodwill
- Patents
- Copyrights
- Licences
- Brands

Amortisation is intended to allocate the cost of the diminution in the value of these assets over their useful lives for accounting purposes. The intention is that the profit or loss for a period should be fairly stated as a result, having reflected the value of assets consumed through use in the period.

In practice amortisation is the subject of much accounting controversy. In particular many accounting standards permit no amortisation charges if it can be argued that the asset remains of value over time e.g. by reinvestment in it to protect its value. This is supposedly indicated by the discounted value of additional profits that can be generated by the business into the future as a result of its continued ownership of the intellectual property.

The result is that all methods used for calculating amortisation are approximate, at best, introducing one of the many elements of approximation commonplace in all forms of financial reporting based on accruals basis accounting standards.

The issue is particularly sensitive when a company fails and it is found the auditors have been generous in accepting high values for intangible assets which have not generated the cash flows that management claimed they might.

See also depreciation.

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An annuity is a contract that pays a person a regular income for the rest of their life in exchange for a lump sum payment, usually provided by a pension fund to which the person receiving the annuity had contributed.

The rate of annuity offered depends upon a person's estimated remaining life, their medical condition and forecast interest rates. The higher that interests are at the time an annuity is bought the higher the likely lifetime income payments will be.

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APR stands for the annual percentage rate on a loan.

APR reflects the full costs of a loan including charges. It also takes into consideration the frequency of loan repayments when calculating the rate payable on a loan.

APR is meant to improve the comparability of quoted interest rates, although it can still be subject to arbitrage and abuse.

APR is a nominal interest rate and not a real interest rate.

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Arm's length method

The arm's length method is described in guidance issued by the OECD on setting transfer prices in international trade that should eliminate profit shifting by translational corporations across international borders and most especially into tax havens, secrecy jurisdictions and other low tax jurisdictions.

This OECD guideline on this issue has become the central organising method for determining the internal prices of trades between subsidiaries of multinational or transnational corporations for tax purposes.

Under the arm's length method of transfer pricing, the internal price is supposed to be the same as if the two related parties were in fact unrelated and traded at arm's length with each other in a free market.

This fic­tion, which treats a multinational corporation as if it is a loose collection of separate unrelated entities trading bilaterally with each other at arm's length, has created huge gaps in the international tax system by allowing for abusive transfer pricing and large-scale tax avoidance. That is because it is frequently impossible to find anything like a realistic ‘arm's length' price – for example, because the relevant internal trade is unique in the market (meaning relevant ‘comparables' are not available), or because some transactions, such as royalty payments for the use of a brand, are intrinsically hard to value.

Country-by-country reporting was created to identify when arm's length pricing was being abused.

Arm's length pricing is fiercely defended by the Big 4 firms of accountants because they have invested heavily in systems to advise upon it and that has made it a major profit centre for them.

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Assets represent legal claims to ownership of property that will give rise to a future cash flow benefits for the organisation that owns them.

Assets can be identified by type, such as:

  • Current assets are those giving rise to a cash flow benefit in less than twelve months.
  • Fixed assets are those which are likely to give rise to a cash flow benefit wholly or partially after more than twelve months.

Fixed assets can be split between:

  • Tangible assets, which represent physical property.
  • Intangible assets represent legal claims to own potential income streams such as a royalty, copyright, or goodwill.
  • Investments e.g. in shares.

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Asset Protection Trust

An asset protection trust includes a clause preventing a trust beneficiary from passing his or her expected interest in the trust to a creditor.

The Cook Islands created the world's first asset protection trust law in 1989. This was controversial because under its provisions the settler of the trust could also be a beneficiary, a feature generally making a trust void in the USA and UK. The law in question has now been copied by many tax haven jurisdictions as part of the general “race to the bottom” in regulation.

Controversially it has also been copied by some US states, including Delaware.

See also secrecy jurisdiction, secrecy space and secrecy provider.

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Asset Purchase Facility

The asset purchase facility (APF) is the name used to describe the Bank of England Asset Purchase Facility Fund Limited.

This company is legally a subsidiary of the Bank of England but has been wholly indemnified for the transactions it undertakes by the UK Treasury since the time it commenced operations in 2009. It owns the assets acquired by the government under the quantitative easing programme. These reached a total of £895 billion in 2022. These assets almost entirely comprise UK government bonds or gilts but approximately £20 billion of commercial binds were also, somewhat controversially, also acquired by the APF.

The interest paid to the APF on the bonds that it owns is refunded to HM Treasury by it meaning that the interest charge on these bonds is effectively cancelled. Controversially, HM Treasury still budgets for these costs as if they were a genuine government expense. This is part of the pretence surrounding QE.

The APF is not consolidated into the consolidated accounts  of the Bank of England as UK company law would seem to require. The reason is not adequately given but would seem to be because the company is actually controlled by HM Treasury, which also controversially treats it as a contingent liability  in its accounts.

The APF is treated as a subsidiary of the government in the Whole of Government Accounts where the government bonds it owns are treated as cancelled on the balance sheet presented by those accounts and the interest payments due are likewise treated as matched and so cancelled by the payments from HM Treasury. This is the only occasion when the government appears to correctly account for the APF, it otherwise being treated as part of the deception that the government wishes to create around quantitative easing.

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An auditor is a person or organisation employed to examine whether a report on quantitative and / or qualitative data, such as a set of accounts, accords with the underlying data used to support its preparation and is a fair reflection of it that assists those likely to read that report to achieve the stated goals implicit or explicit within its preparation.

The term most commonly refers to those expressing an opinion on the truth and fairness of financial statements or accounts, including those of a company, other reporting entity, government and tax authority.

See also audit failure, Big 4 and accounts

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Austerity is used to describe a particular form of fiscal policy  where a government decides to reduce the share of government spending  within gross domestic product (GDP)  usually with the intention of reducing the ratio of national debt  to GDP. The consequence is that spending on many or all public services is reduced, as is employment by the state and over all the state withdraws the economic stimulus it previously supplied to the economy. Austerity usually reduces GDP, making the achievement of its objective harder, by definition.

The policy was associated with the so-called Geddes Axe that sought to cut government spending after the First World War. It was also used by governments in the 1930s and again by Margaret Thatcher in her early years in office, in particular, but more recently austerity is a narrative largely associated with David Cameron and George Osborne, who were, respectively, prime minister and the chancellor of the exchequers of the United Kingdom from 2010, until 2016.

The austerity narrative was created as a reaction to the financial situation inherited by the incoming Conservative government in 2010 from the Labour government that was voted out of office in that year, which party had been in government during the global financial crisis of 2008.

Cameron and Osborne claimed that the record-breaking government deficits (exceeding £150 billion in 2009) that it had inherited had a number of consequences that they had to address. These included:

  • The risk that the UK government could not service its debt obligations.
  • The risk that the UK government could no longer be able to borrow on international financial markets, because of the threat that deficits posed to its solvency.
  • The likelihood that the UK government could no longer afford to spend at the level it had under the previous Labour administration because the UK economy had been irreparably harmed by the UK financial crisis, which they blamed upon the Labour government.

As a consequence, Cameron Osborne claimed that:

  • UK government expenditure must be cut under an austerity program that they would put in place.
  • It was essential that UK government debt as a proportion of its gross domestic product (see separate entry) be reduced to restore the U.K.'s international financial credibility.

These claims by Cameron and Osborne and their associates in the coalition partners, the Liberal Democrats, were not justified, because:

  • There was no risk to the UK's ability to service its debt or to pay the interest due upon it. This was because as a sovereign nation with its own central bank and its own currency with debts that were at the time entirely denominated in that currency the UK could always create any money owing by it as liabilities fell due by simply asking the Bank of England to create the money in question. This put it in complete contrast with the situation in Greece, which used the euro, but with which Osborne made frequent and entirely incorrect comparison.
  • Almost all economists agree that in the event of a recession, or threat of it, a government should increase its spending to counter the downturn in private sector spending and so prevent too large a fall in the income of a country, but what Osborne proposed was to reduce government spending, so increasing the likelihood of a significant reduction in overall national income.
  • In practice very little additional debt was taken on by the UK government between 2010 and 2013, precisely because most of government expenditure in excess of taxation revenues, during the course of this period was funded by a quantitative easing program, with which factor Osborne would have been very familiar. Osborne denied that this programme reduce the real level of government debt even though this was continually demonstrated, be the case by the Whole of Government Accounts .

The austerity narrative was supported by a number of claims, most of which were easy to communicate, but all of which were wrong. These narratives included:

  • The claim that the Labour Party was entirely responsible for the 2008 financial crisis, which had, in fact, originated in US housing markets and which was global rather than peculiar to the United Kingdom.
  • That the UK, like a household, was broke and unable to pay its debts (see separate entry on the household analogy).
  • That because the UK was broke it must, like a household, cut its costs (again see separate entry on the household analogy).
  • That government was too big under Labour and could not be afforded, for which there was no evidence before the global financial crisis.
  • Much of the overspending by the Labour government had been because of excess benefit payments to persons whom Cameron and Osborne described as skivers even though there was little or no evidence to support this claim.

The austerity program put in place since 2010 has been a disaster for the UK:

  • The incomes of most people have not risen in real terms since 2010.
  • In contrast, the income of those in higher-earning echelons has increased, significantly, meaning that inequality has grown as a consequence.
  • Wealth inequality grew substantially during the course of this period, primarily because the quantitative easing program whose primary consequence was the release of additional funding to banks to restore their solvency following the global financial crisis, which funding they then used to make loans that inflated the price of assets (most especially domestic housing), which programme then restored commercial bank solvency, enabled banks to restore the payment of bonuses remarkably soon after the crisis had ended, and resulted in further inequality within the UK society.
  • The reduction in many benefit payments and the introduction of new charges on those on benefits, including the so-called bedroom tax, reduced the income of the lowest-earning groups in society, again, increasing inequality.
  • The substantial reduction in funding to local authorities, most, especially in England, resulted in significant reductions in the expenditure on social care, reducing the amount of support available to the most vulnerable in society.
  • The reduction in the budgets of many public services, including education and health, resulted in substantial under-investment in the services, which left the UK, subject to significant risk when the Covid crisis hit. This has now in turn resulted in the chronic under capacity within the NHS being witnessed in 2022/23.
  • The reduction in real pay for public sector workers, including teachers, healthcare workers, university lecturers, civil servants, social care professionals and others, led to an exodus of experienced and qualified staff from these services that has reduced their capacity to meet public demand for such services.
  • The reduction in expenditure on defence has led to the U.K.'s loss of international status as a military power.

The austerity program also failed because, using the government's own preferred definition of national debt increased from £1 trillion in 2010 to almost £2.5 trillion in 2023, meaning that 60% of all UK national debt in 2023 had been incurred since 2010, when the supposed objective of the austerity program was to reduce that debt as a proportion of GDP, when it had in fact increased to record levels. In its own terms, the austerity programme failed as a result.

None of this was necessary: the inappropriate application of the household analogy to the management of the finances of the UK's macroeconomy led to destruction of economic power within the country that firstly led to Brexit, because of the disenchantment of many with the government that imposed this programme, and secondly has led to a persistent poor economic performance in the UK when compared to all other countries of similar size and economic development meaning that by 2023 it had uniquely failed to recover from the economic downturn caused by the Covid crisis.

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