HMRC, or Her Majesty’s Revenue and Customs, is the UK’s tax authority. It plays a role in collecting taxes, enforcing tax regulations, and administering various social and economic policies. HMRC ensures that individuals and businesses fulfil their tax obligations, which fund public services such as healthcare, education, and infrastructure.
This government agency, also catches tax evasion and fraud, safeguarding the integrity of the tax system. They offer guidance and support to the taxpayers, helping them understand their tax responsibilities, and how to access benefits and credits they may be entitled to.
In this article, we will cover why HMRC is the backbone of the UK’s financial system, what the HMRC does, the types of taxes, and updating your address with the HMRC.
What Does the HMRC do?
As a taxpayer in the UK, you’ll have encounters with the HMRC at some point, but knowing what’s happening is crucial.
Responsibilities
What’s HMRC responsible for is collecting taxes, enforcing tax laws, and various welfare and regulatory programs. Their role consists of ensuring that individuals and businesses pay the correct amount of tax, such as income tax, value-added tax (VAT), and corporate tax. They also oversee customs and excise duties, handling imports and exports.
With all of this revenue, the HMRC plays a crucial role in funding public services like healthcare, education, and infrastructure by collecting revenue. Additionally, the agency offers social benefit programs, including tax credits and child benefits, to support low-income families and individuals.
The HMRC’s responsibilities:
- Tax Collection – HMRC collects various taxes, including income tax, national insurance contributions, value-added tax (VAT), corporate tax, and inheritance tax. They have to ensure that individuals and businesses pay the correct amount of tax.
- Customs and Excise – HMRC manages customs and excise duties on imported and exported goods. They enforce customs regulations, including the classification of goods and the collection of customs duties.
- Tax Compliance – They monitor and enforce tax compliance by conducting audits, investigations, and compliance checks to prevent tax evasion and fraud. They also guide taxpayers to help them understand and meet their tax obligations.
- Welfare Benefits – HMRC administers various social welfare programs, such as tax credits, child benefits, and the state pension. They assess eligibility and make payments to support people in need.
- Financial Regulation – HMRC is involved in regulating certain financial sectors, including money laundering regulations and the taxation of financial services.
- Enforcement – They have the authority to take legal action against individuals and businesses that fail to comply with tax laws. This can include penalties, fines, and, in extreme cases, criminal prosecution.
- Online Services – HMRC provides online services and digital platforms to make it easier for taxpayers to file returns, make payments, and access information related to taxes and benefits.
- Policy Development – HMRC plays a role in developing tax policies and advising the government on tax-related matters to ensure a more efficient tax system.
Types of Taxes
In the UK, the tax landscape has different types of taxes.
Income Tax – Income tax is the backbone of UK revenue because it’s based on individuals’ earnings. It’s progressive, with rates increasing as income rises.
National Insurance – The National Insurance contributions fund healthcare and social benefits.
Value Added Tax (VAT) – A consumption tax, VAT applies to most goods and services. There are reduced rates for essential items and exemptions for certain sectors.
Corporate Tax – Companies pay tax on their profits, varying rates depending on profit levels.
Council Tax – This is the property tax that local authorities collect to fund local services.
Capital Gains Tax – This applies to profits made from selling assets like property and investments.
Inheritance Tax – Levied on the estates of deceased individuals, with exemptions for smaller estates.
Pay As You Earn (PAYE) Tax – This is for if you’re employed “on the books”, and the employer deducts the Income Tax and National Insurance Contributions directly from your salary and remits that amount to HMRC.
Self-assessment Tax returns and Tax Credits
Self-assessment tax returns are a process in the UK where individuals, including self-employed and business owners, report their income, expenses, and other financial details to calculate their tax liability. This is required to do so annually to ensure they’ve paid the correct amount of income tax and National Insurance contributions.
On the other hand, tax credits are government financial support designed to help low to moderate-income individuals and families. There are two main types: Working Tax Credit (for those in employment) and Child Tax Credit (for families with children). Tax credits provide supplementary income to eligible recipients, based on their circumstances, helping to alleviate financial burdens and support their well-being.
Updating Your Address with the HMRC
When changing your address it’s crucial to let the HMRC know so you ensure your tax records are up to date. You can notify the HMRC of your new address by updating your information through their official website or by contacting them by phone. Accurate address details are vital for receiving tax-related documents, and to ensure that you pay the correct amount of taxes. If you fail to update your address, that could lead to potential issues or delays in your tax affairs.
