Contractor Financial Glossary
Agreement In Principle (AIP)
A written estimate from a lender indicating how much they may be willing to lend you, based on an initial assessment of your circumstances. It is not a guaranteed mortgage offer but proves to estate agents that you are a serious buyer.
Read our full A-Z of Mortgage Terms.
Benefit-in-Kind (P11D)
Perks or benefits provided by an employer (or your own limited company) to an employee that are not included in their salary, such as a company car or private medical insurance. These are often subject to personal Income Tax.
Contract-Based Underwriting
A method used by specialist mortgage lenders to assess a contractor’s income. Instead of looking at salary and dividends, the lender calculates an annualised income based on the contractor’s gross daily or hourly rate.
See our A-Z of Mortgage Terms.
Corporation Tax
A tax levied on the taxable profits of limited companies and other organisations in the UK.
Critical Illness Cover
An insurance policy that pays out a tax-free lump sum if you are diagnosed with one of the specific serious illnesses listed in the policy, such as cancer, heart attack, or stroke.
Want to know more about Critical Illness Cover?
Dividend
A payment made by a limited company to its shareholders out of its profits after Corporation Tax has been paid.
Executive Income Protection
A highly tax-efficient form of income protection paid for by a limited company. It pays out a regular monthly benefit to the business if the insured director cannot work due to illness or injury, which is then passed on to the director via PAYE.
Learn more about Executive Income Protection.
IR35 (Off-Payroll Working Rules)
Tax legislation designed to combat tax avoidance by workers supplying their services to clients via an intermediary (such as a limited company) who would otherwise be an employee if the intermediary was not used.
Key Person Insurance
A business protection policy taken out by a company on the life of a crucial employee or director. The policy pays a lump sum directly to the business if that person dies or suffers a critical illness, helping the company survive the financial impact.
Learn how Key Person Cover can protect your business.
Relevant Life Insurance
A highly tax-efficient life insurance policy paid for by a limited company on behalf of an employee or director. It provides a death-in-service benefit that pays a tax-free lump sum to the individual’s family, while the premiums are typically an allowable business expense.
Learn more about Relevant Life.
Shareholder Protection
An insurance arrangement that provides the surviving shareholders of a business with the funds required to purchase the shares of a shareholder who dies or becomes critically ill, ensuring business continuity and control.
Find out more about Shareholder Protection.
Special Purpose Vehicle (SPV)
A limited company set up specifically for a single, well-defined purpose. In property investment, an SPV is commonly used by landlords to purchase and hold Buy-to-Let properties in a tax-efficient manner.
Umbrella Company
A company that acts as an employer to agency contractors who work under a fixed-term contract assignment. The umbrella company processes timesheets, calculates PAYE tax and National Insurance contributions, and pays the contractor their net salary.