What Is HMRC (His Majesty's Revenue and Customs )? Explained

Every tax system requires a financial powerhouse responsible for collecting taxes, paying benefits, enforcing customs rules, and ensuring businesses play by the book. In the case of the UK, it's the His Majesty’s Revenue and Customs (HMRC). Think of it as the unsung hero (or your villain, in case your tax bill is really high!) of Britain's economic engine. 

Essentially, from Income Tax to VAT and pensions to payroll, HMRC is at the heart of Britain’s fiscal framework. This blog explores What is HMRC in detail, exploring what it does and why it matters to every UK taxpayer. So, read on!

Table of Contents

1. What is HMRC?

2. What does HMRC do? 

3. What is HMRC Responsible for in the UK Tax System?

4. HMRC Online Services

5. How does HMRC Handle Employee Tax Codes?

6. What are the Penalties for Non-compliance With HMRC?

7. How does HMRC Enforce Employment Laws?

8. Conclusion
    

What is HMRC?

His Majesty’s Revenue and Customs (HMRC) is the United Kingdom’s tax, payments and customs authority. It plays a significant role in funding the UK’s public services by collecting taxes, including Income Tax, corporation tax, VAT, and duties on goods and services. HMRC also administers National Insurance contributions and ensures compliance with tax laws.

Beyond tax collection, it provides financial support to families and individuals through schemes like Child Benefit and tax credits. As a non-ministerial department, HMRC operates independently of direct political control, ensuring impartiality in its operations.

What does HMRC do?

HMRC is integral to the working life of people in the UK from the moment they receive their first payslip. The reason being HMRC is responsible for collecting National Insurance contributions Income Tax from employers, who, on behalf of the government, take them from working people’s salaries. Besides collecting Income Tax and NI, HMRC performs the following functions:

1. HMRC Collects all types of tax from individuals, businesses, and goods sold in the UK.

2. It collects billions of pounds in revenue annually to fund public services like the NHS, police, education, and military.

3. It's responsible for distributing state support such as working tax credits, child benefits and the state pension.

4. It also conducts investigations into tax evasion and is generally helpful and efficient for law-abiding citizens and businesses.

What is HMRC Responsible for in The UK Tax System?

Let’s look at some of the main taxes that HMRC collects. If you’re an experienced accountant, you’ll likely know these well. But if you’re new to Accounting or thinking about it as a career, this is a handy introduction:

1. Value Added Tax (VAT)

VAT is a 20% charge added to most goods and services in the UK. Businesses include this in their prices and pass it on to HMRC every three months.

2. Capital Gains Tax

Capital Gains Tax applies when you sell assets like property or shares and make a profit. For the 2025/26 tax year, basic-rate taxpayers pay 18% on most gains, while higher-rate taxpayers pay 24%. These rates also apply to property gains. Individuals are required to report and pay CGT, often through an online submission, especially when disposing of residential property.

3. Income Tax

People pay tax on their earnings above a certain amount. If you're employed, it's usually taken automatically through Pay As You Earn (PAYE). If you're self-employed, you save and pay it yourself once a year through a self-assessment.

4. Stamp Duty Land Tax

In England and Northern Ireland, SDLT is charged on residential property purchases over £125,000. First-time buyers benefit from an exemption on homes costing up to £300,000 and pay 5% on the portion between £300,001 and £500,000.

For properties above that, standard SDLT rates apply. Typically, solicitors manage the payment process, ensuring the amount due is submitted to HMRC within 14 days of completion.

5. Corporation Tax

From April 2025, corporation tax rates vary based on profit levels. Companies earning up to £50,000 in profit will pay 19%. Those with profits exceeding £250,000 will be taxed at 25%. For companies with profits between £50,000 and £250,000, marginal relief applies, creating a gradual increase in the rate between the two thresholds.

6. Excise Duties

These are extra charges on things like alcohol, tobacco, and fuel. They're meant to reduce how much people buy these products. Companies pay these charges to HMRC, not the buyers directly.

7. Inheritance Tax

Inheritance Tax is charged on estates worth more than £325,000. Any value above this nil-rate band is taxed at 40%. However, a reduced rate of 36% can apply if at least 10% of the estate is left to charity. While the tax can be paid in instalments, interest is applied to the outstanding balance, currently at a relatively high rate of around 7%.

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HMRC Online Services

Anyone who seeks to access HMRC's online services must register either an individual account, an organisation account, or an agent account. let's explore them further:

Individual Accounts

Individual taxpayers can create either of the following:

1. Personal Tax Account: This feature allows users to check Income Tax estimates, claim refunds, and update their personal details.
2. Self-assessment Account: It's used to submit a self-assessment tax return, if required.

Organisation Accounts

These accounts are required for trusts and businesses that need to be registered with HMRC. When organisations set up their organisation account, they can utlise it for various registrations and services, such as:

1. Setting up PAYE once they start employing staff.

2. Registering for VAT if their taxable income exceeds £90,000.

3. Registering for self-assessment if it’s a sole Trader or one-person business.

4. Adding Corporation Tax services in case it’s a limited company.

Agent Accounts

Tax agents and professional Advisors can manage their clients’ tax affairs better by setting up an HMRC agent account. This online service enables them to act on behalf of individuals and businesses across a range of HMRC services.

Once registered, agents can request authorisation from clients, which allows them to access client-specific data and perform tasks such as filing tax returns, managing PAYE, VAT, and Corporation Tax.

Through the HMRC Online Services for Agents portal, Advisors can: 

1. View and update client records

2. Check for outstanding liabilities

3. Submit forms

4. Communicate securely with HMRC

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How does HMRC Handle Employee Tax Codes?

HMRC assigns a tax code to each employee, which indicates their personal allowance and helps determine how much Income Tax should be deducted from their wages. Employers are responsible for:

1. Using the correct tax code provided by HMRC to calculate tax deductions.

2. Updating the code promptly when notified of changes by HMRC.

3. Supplying accurate year-end tax summaries.

4. Issuing correct end-of-employment forms to both HMRC and the employee.

An employee’s tax code reflects their specific tax situation, such as whether it’s their main or secondary job, or if their income moves them into a higher tax band. Special codes may also apply for non-taxable income, benefits, or adjustments to personal allowances.

What are the Penalties for Non-compliance With HMRC?

Employers who fail to meet HMRC obligations can face penalties, including the following:

1. Late Filing Penalties: Missing tax return deadlines can result in immediate fixed penalties. For example, a £100 fine is applied for late self-assessment returns, even if no tax is owed. Further delays lead to increased fines and daily charges. 

2. Late Payment Penalties: If you fail to pay tax on time, HMRC may charge interest on the outstanding amount, as well as additional penalties depending on how long the payment is overdue. 

3. Inaccurate Returns: If your tax return contains errors, you could face penalties ranging from 0% to 100% of the tax owed, depending on whether the mistake was careless, deliberate, or concealed. 

4. Failure to Notify: If you don’t inform HMRC about taxable income or chargeable gains, you could be penalised. This typically applies when you begin a new income source, such as self-employment, and fail to report it. 

5. VAT and PAYE Offences: Incorrect VAT submissions or late PAYE payments can also trigger financial penalties and possible investigations.

How does HMRC Enforce Employment Laws?

HMRC monitors and investigates employer practices to enforce employment laws. These include:

1. National Minimum Wage (NMW): Employers are legally required to pay employees at least the minimum wage, which varies based on age and job type. Failure to do so can result in penalties and public naming.
2. Anti-money Laundering (AML) Compliance: Businesses in regulated sectors must adhere to HMRC’s AML guidelines to prevent financial crime. Non-compliance may result in fines or prosecution.

3. Statutory Employment Benefits: Employers must provide mandatory benefits, including:

   a. Statutory Sick Pay (SSP): This is for eligible employees who are off work due to illness.

   b. Statutory Maternity Pay (SMP): This is for qualifying employees on maternity leave.

   c. Statutory Paternity Pay (SPP): This is for eligible employees taking paternity leave.

Conclusion

Understanding What is HMRC is essential because, from collecting taxes to cracking down on fraud, HMRC plays a vital role in keeping the UK's financial engine running smoothly. It’s about fairness, funding public services and supporting the citizens. Understanding how HMRC works helps you stay informed, compliant, in control of your finances and contribute to the nation's future.

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