So, what is HMRC? And what does it do?
HMRC stands for Her Majesty’s Revenue and Customs. You might also have heard it being referred to as the ‘tax office’ or ‘tax people’.
It is correct that they are the United Kingdom (UK) tax authority ran by the UK government. But there is a lot more to HMRC than meets the eye.
What Is HMRC and What Do They Do?
In 2005, HMRC was formed. The separate ‘Inland Revenue’ and ‘Her Majesty’s Customs and Excise’ joined departments. So now, HMRC is the authority on payments, revenue, and customs, too.
It also has a few other responsibilities which may surprise you. Are you interested in learning more? Keep reading this guide for everything you need to know about the HMRC!
The primary role of HMRC is to implement the tax system for the UK government. This includes managing and collecting business taxes, along with an individual’s taxes.
You can work out if you are paying the correct taxes using a tax rebate calculator. Or fill in the form on the HMRC website.
As the tax laws can be pretty confusing, here is a breakdown of the different tax types the HMRC can collect.
Income tax is from any money you earn over the tax-free allowance. It includes money earned from pensions, rental properties, and wages. It goes towards paying for public sector services like education.
Join Our Small Business Community
Get the latest news, resources and tips to help you and your small business succeed.
Value Added Tax (VAT)
VAT is added to the amount you pay for goods and services. It usually is 20%. In the UK, this amount is already included in the price listed for the item.
Capital Gains Tax
If you have shares and they have increased in value when you sell them, you are subject to capital gains tax. Your car and home are not included.
Businesses are also able to claim a capital allowance. This is how much the company has spent on assets, and it can be subtracted from their business taxes. Items include machinery, rental properties, and business vehicles.
The capital gain tax rate depends on whether it is a business or non-business asset.
Businesses’ taxes include corporation tax in some cases. If you are a limited company or a foreign company with a UK office, you are subject to this tax. Any unincorporated associations are also included, such as sports or community clubs.
Tax laws state you have to register within three months of doing business. Usually, you register payments such as corporation tax when you register your company.
The executor of the deceased’s will has to pay tax on any money, possessions, and property over a certain amount. The UK government groups taxable items under ‘estate’. This does not mean just land or property, but all money and possessions. If you want to learn more, check out this comprehensive inheritance tax guide.
Stamp Land Duty Tax (SDLT)
If you buy a property over a specific price in England and Northern Ireland, you have to pay this tax. In Scotland, it is the Land and Buildings Transaction Tax, and in Wales, Land Transaction tax.
Properties subject to tax collection include freehold and a new or existing leasehold. Property in a shared ownership scheme is also included.
The amount you pay depends on when you bought the property and its cost. If you are a first-time buyer, there are different thresholds to help you get on the property ladder.
Environmental Tax Laws
The HMRC also implements environmental taxes for the UK government. The Climate Change Levy, emissions trading, and landfill tax are part of this.
Environmental taxes and laws have helped reduce waste. For example, there were 86% fewer plastic bags issued once a charge was implemented.
Revenue and Customs
When you ask, ‘what is HMRC?’, customs may not be the first thing that comes to mind. But they also enforce Customs Duty. This is the amount you pay on items sent from outside the UK, either excise goods or goods worth over £135.
Excise duties are also paid. Particular UK-based items are subject to excise duties. This is the extra amount you pay for things like cigarettes. In part, excise duties aim to create revenue for the government.
The HMRC also helps facilitate legal international trade, and it collects trade statistics. Their trade regulations help manage illegal smuggling. Their regulations also create revenue for the UK government.
Enforcement and Compliance
This area of the HMRC is broad. It includes enforcing payment of the UK minimum wage and National Insurance contributions. National Insurance is a tax collection for benefits such as a state pension.
HMRC also implements systems to stop tax avoidance. HMRC can conduct criminal investigations. If it suspects businesses or individuals are not abiding by tax laws, it will investigate.
The HMRC also manages the non-payment of student loans. In the UK, student loans are not on credit reports and are not like regular loans. They are subject to different rules and are managed by the UK government.
Benefits and Credits
The HMRC also administers and pays tax credits. This redistributes income to people on a lower wage.
Tax credits are subject to certain conditions. What counts as low income and working hours depends on an individual’s circumstances.
HMRC also pays child benefits. Anyone responsible for a child under 16 years old is eligible. It is a monthly payment, and you receive more or your first child.
HMRC also delivers statutory payments. These include statutory sick pay and statutory maternity leave pay.
What Is HMRC?
The answer to the question, ‘what is HMRC?’, does not have an easy answer! However, its objectives can be summed up.
It aims to efficiently regulate taxes, collect revenue, and prevent tax evasion. They also aim to help people in need of financial support, plus support public services.
And now you know the HMRC is more than just the ‘tax office’. And you can answer the question, ‘what is HMRC?’ with an in-depth answer!
Did you find this guide helpful? Be sure to check out our other blog posts for more helpful information!
Some other articles you might find of interest:
Marketing blogs you must follow as an entrepreneur:
Are you feeling cramped in your home office space? You might enjoy this article: