What is HMRC?

What is HMRC? 

HMRC (His Majesty's Revenue and Customs, formerly Her Majesty’s Revenue and Customs) is the UK’s tax, payments and customs authority. The UK authority was formed in 2005 by the merger of Inland Revenue and HM Customs & Excise. The aim of this non-ministerial department is to collect the money for the UK’s public services and to help citizens by providing targeted financial support.

What Are the Key Responsibilities of HMRC?

Tax Collection and Administration

The department administers and collects direct and indirect taxes. Direct taxes include Income Tax, Corporation Tax, Capital Gains Tax (CGT) and Inheritance Tax (IHT). On the other hand, Indirect taxes collected by HMRC include Value Added Tax (VAT), excise duties, and Stamp Duty Land Tax (SDLT). There are also environmental taxes such as Air Passenger Duty and the Climate Change Levy. 

Pay-As-You-Earn (PAYE) System Management

HMRC collects income tax and other expenses from the salaries with the pay-as-you-earn scheme, which means that employees pay their income taxes in regular instalments. You can see how these payments are used in the Government website.

Anti-Fraud and Compliance Enforcement

HMRC plays an active role in anti-money laundering supervision by consistently investigating individuals and businesses that may be attempting to avoid taxes. HMRC’s Fraud Investigation Service (FIS) focuses on major cases of tax fraud and economic crime.

Benefits Administration

As we have mentioned in the introduction, HMRC also plays a significant role in handling payments and benefits for individuals and families such as payment of tax credits, Child Benefit, Maternity Pay and Sick pay. HMRC serves almost every individual and business in the UK in some way. 

Customs and Border Control

While facilitating legitimate international trade, HMRC also protects the UK’s fiscal, economic, social and physical security before and at the border. Furthermore, it collects UK trade statistics. 

HMRC and Making Tax Digital (MTD)

Making Tax Digital (MTD) is a new digital system for recording and reporting your income and expenses. It requires you to keep records digitally through MTD-compatible software, send updates quarterly, and submit final annual declarations within the same system. 

Today, MTD applies to most VAT-registered businesses with taxable turnover above £90,000. However, starting from April 2026, MTD for Income Tax Self Assessment will be introduced. MTD for Corporation Tax is also under consultation and expected after 2026. 

Corporation Tax Obligations

If you are a UK limited company, foreign company with a UK branch, or a certain association that makes taxable profits, you must register for Corporation Tax online within 3 months of starting business activities. 

Since HMRC may request them during an audit, you must also retain records (incomes, expenses, assets, and liabilities) for at least 6 years. 

Furthermore, you must file a Company Tax Return (CT600) every year, which should include full statutory accounts, tax computation, and any allowances claimed. 

If your taxable profits do not exceed £1.5 million, you must pay Corporation Tax 9 months and 1 day after your accounting period ends, which must be made before filing your tax return. However, if your taxable profits exceed £1.5 million, you must pay your Corporation Tax in instalments. You should also note that you must report HMRC if you have nothing to pay. 

Here are the Corporation Tax Rates:

• 19%, the small profits rate, for profits up to £50,000

• Between 19% and 25%, the marginal relief, for profits between £50,001 and £250,000

• %25, the main rate, for profits over £250,000

VAT Registration and Compliance

In the UK, VAT (Value Added Tax) taxable turnover threshold is £90,000. You must include VAT in all prices at the correct rate, keep records of how much VAT you pay for your business purchases, account for VAT on any goods you import into the UK, and pay any VAT you owe to HMRC. You should also report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses through a VAT return to HMRC, which must be done quarterly. 

Employment Tax Responsibilities

First, you must register as an employer with HMRC before the first payday. After the registration, you will receive a PAYE reference number and an Accounts Office reference. Then, proceed to operate the PAYE system to deduct Income Tax, National Insurance Contributions (NICs), student loan repayments or other statutory payments. 

However, there is still another payment to do for employers; National Insurance Contributions. These help fund UK social benefits such as pensions, maternity pay, and sick leave. You must report both employee and employer NICs to HMRC each month through payroll. 

Being already on the subject of payrolls, you must submit payroll data through RTI (Real Time Information) system. When you pay employees, you must send Full Payment Submission (FPS) and Employer Payment Summary (EPS).

In addition to these, you must give employees payslips that show earnings and deductions. There are also annual forms such as P60, P45, and P11D, which must be submitted in particular cases. 

Last but not least, you must pay PAYE and NIC deductions to HMRC each month (or every three months for small employers). You should also be aware that you are responsible for managing and reporting Statutory Sick Pay (SSP), Statutory Maternity, Paternity and Adoption Pay, Statutory Redundancy Pay, and Holiday Pay. 

How to Register with HMRC?

• First, you have to know which account type you need, which may be an individual account, a business account, or an agent account (if you act on behalf of clients).
• Now that you have determined your account type, go to HMRC’s website to sign up. Once you are logged in, you can select the services you need such as Self Assessment, PAYE, VAT, or Corporation Tax. 
• In the following pages, it will ask you to enter your details. However, HMRC may send an activation code by post for certain services, which may take up to 7 days. Once you receive it, sign-in and enter the activation code. 
• After you have completed these steps and activated your account, you can use your account to manage taxes, submit returns, and view your tax account details. 

International Compliance and Cooperation

CRS: CRS (Common Reporting Standard), allows HMRC to automatically exchange financial account data with more than 100 countries. 

FATCA: FATCA (Foreign Account Tax Compliance Act) is a bilateral agreement between the UK and the US to share information on citizen accounts. 

DAC: The UK participated fully in DAC (Directive on Administrative Cooperation) before Brexit. Today, it still continues to mirror DAC standards under its own domestic laws. 

What Is a UTR Number and How Do I Get One from HMRC?

A UTR (Unique Taxpayer Reference) number is a 10-digit number needed for filing a Self Assessment. However, there may be other reasons why you might need it such as CIS (Construction Industry Scheme) tax refund registrations and working with financial advisors. Not having a UTR number may result in hefty fines and criminal prosecution. 

What Is the HMRC Personal Tax Account and How to Use It?

HMRC Personal Tax Account is an online portal that allows you to access your records and manage your tax affairs. In this portal you can:

• Check your Income Tax estimate and tax code,
• Submit, view or manage a Self Assessment tax return,
• Claim a tax refund,
• Check your Child Benefit,
• Check your income from work in the previous 5 years,
• Check how much income tax you paid in the previous 5 years,
• Check your State Pension,

You can check the UK Government’s website for other possible actions.

What Are the Penalties?

Late Filing / Late Payment

If you submit a return or form late, you may receive a penalty. However, it depends on the tax or duty such as Self Assessment tax, PAYE and National Insurance payment, Corporation Tax, or VAT deadlines. For more information on each penalty, you can visit the UK’s webpage.

Inaccuracy Penalties

Understating the tax or misrepresenting the tax liability can result in penalties. It should be noted that HMRC measures the penalty depending on the reason why the error occurred. If it is due to lack of ‘reasonable care’, the penalty is usually between 0% and 30% of the extra due. Whereas, if the error is deliberate, the penalty will be between 20% and 70%. However, in addition to being deliberate, concealing it can result in up to 100% of the extra tax due. 

Failure to Notify

If you have a new tax liability or a change in circumstances, you must notify HMRC about the change. For example, being liable to tax because of a new business making a profit, being liable for Corporation Tax, or business turnover reaching the VAT registration threshold. If you do not do this at the right time, you will likely face a penalty that is calculated based on the potential lost revenue from the unreported liability. 

Offshore Penalties

Since 6 April 2011, HMRC can charge an increased penalty for assets and incomes held outside the UK due to the reasons such as inaccuracy and failure to notify. The penalty will depend on the readiness of the foreign jurisdiction to share information. It should be noted that this only applies to Income Tax and Capital Gains Tax. 

VAT and Excise Wrongdoing Penalty

A wrongdoing penalty includes issuing an invoice that includes VAT which they are not entitled to charge, handling goods on which excise duty has not been paid or deferred, using a product in a way that means more excise duty should have been paid, or supplying a product at a lower rate of excise duty knowing that it will be used in a way that means a higher rate of excise duty should be paid. This penalty is, in fact, calculated similarly to the inaccuracy penalty and cooperation can decrease the penalty.