What is HMRC?

What is HMRC?

HMRC really stands for Her Majesty’s Revenues and Customs. It is an agency formed from the merger of the Inland Revenue and the Board of Customs and Excise. HMRC, whose headquarter is at 100 Parliament Street in London, began operation on 18^th of April 2005. The body is the equivalent of the American IRS (Internal Revenue Service).

Anybody seeking to work or get employment in the UK must be registered with HMRC to pay tax in one form or the other. As a self-employed person or sole trader, it is important to note that registering with HMRC is not voluntary but compulsory once your income begins to go over £1000.

Indeed, every taxpayer in the UK – selling goods and or services, either as an employee or an employer – is a customer of the HMRC. They could either be registered through PAYE (for employees), Self-Assessment (for the self-employed and sole traders), or corporation tax (for limited liability companies, either public or private, for-profit or charities).

What does HMRC do?

The non-ministerial UK government department is tasked with the following duties –

• Tax collection – including direct and indirect taxes, value-added tax (VAT), corporation tax, inheritance tax, capital gains tax, excise duties, air passenger duty, climate change levy, and stamp duty land tax
   
• Administration of regulatory regimes such as national minimum wage and anti-money laundering registrations for Money Service Businesses
   
• Payment of state support such as child benefit, tax credits, statutory maternity payment, and statutory sick payment
   
• Issuing NI (National Insurance) numbers and collection of NIC (National Insurance Contributions)
   
• Administration of the Government Banking system, reporting to the HM Treasury for an efficient cash management system in the UK
   
• Collection and publication of trade-in-goods statistics

Divisions within the HMRC and their duties

The HMRC is divided into different divisions which handle some tax and together make for an efficient system. Some of these are:

• Enforcement and Compliance division – this is the division that enforces the payment of national minimum wage, investigates and penalises non-payment of taxes, helps in recovering unpaid student loans and implements regulations to minimise tax evasion.
   
• Customs division – this division supervises international trade and ensures that all customs are paid and regulations are adhered to. In other words, they oversee the implementation of legitimate trading and as such help the government to curb illicit trading and smuggling into and out of the UK.
   
• Benefits and Credit division – this division sees to the appropriate payment of child benefit, statutory payments such as maternity and sick pay, as well as tax credits

What are the other responsibilities of the HMRC?

Some other activities being undertaken by the HMRC include

• overseeing the collection, compliance, and implementation of activities that helps the maintenance of the flow of money to the Exchequer,
• funding of the UK’s public services,
• facilitates legitimate international trade, protect the UK’s fiscal, economic, social, and physical security before and at the border, and collect UK trade statistics,
• transact with almost all the residents of the UK and businesses,
• administering the Government Banking Service, and
• anti-money laundering supervision

A brief history of the HMRC

The decision to merge Inland Revenue with Customs and Excise has been in play since 1862 but the decision was vehemently opposed by the Inland Revenue. The Board of Inland Revenue was created in 1849 through the merger of the Board of Stamps and Taxes with the Board of Excise. Due to the overlap of duties of the Inland Revenue and Board of Customs, the excise duties were removed from those of Inland Revenues and added to those of the Board of Customs to become the Board of Customs and Excise in 1909.

However, the Treasure Committee once again proposed the idea of a merger of the Inland Revenue and Customs and Excise for the purpose of potentially saving on public expenditures and compliance costs. This was conveyed in a presentation made in 2004 by Gus O’Donnell, the Permanent Secretary of the Treasury, citing the need for efficiency and effectiveness of duties as well as improvement in customer service. There were mixed feelings about this decision since both agencies had different legal and cultural backgrounds as well as the potential for job losses. 

This however did not stop the merger which eventually took place in 2005 under the Commissioners for Revenue and Customs Act of 2005. HMRC was thus established as a non-governmental department reporting directly to Parliament through the Treasury under the leadership of the Chancellor of the Exchequer. Expenditures of the HMRC are supervised and moderated by the Treasury.

How to register with HMRC ?

For the self-employed or sole trader and business partnership, what you need to do is

• Complete the online form (Self-Assessment form – SA103S or SA103F forms) on the HMRC website,
• Either submit online or print out the form, fill, and send it to the address on the form, or
• Call HMRC on 0300 200 3310.

For the limited liability company (public or private), limited partnership, limited liability partnership, construction companies, charities, or clubs, when registering for corporation tax, you should

• Sign in to your business tax account using the Government Gateway user ID and password for your company. You should have this while registering with Companies House. If you do not have one, however, you can create one.
• Some of the information you will need for the registration include,
  • the registration number of your company
  • your company’s 10-digit Unique Taxpayer Reference (UTR) which should have been sent in correspondence to your company’s registered office address 14 days after incorporating with Companies House.
  • business start date. This will mark the beginning of your company’s accounting year.
  • the date your annual accounts are made up to (accounting reference date – ARD).
  • business SIC code (Standard Industrial Code describing your company’s business type).

After registering with HMRC, you will be issued a unique 10-digit number known as the Unique Taxpayers Reference (UTR) number. You must always provide this UTR number when you want to pay your tax, or claim tax relief as the case may. The number is essentially what HMRC recognises you with.

When should you register with HMRC?

As stated at the beginning of this article, it is important for every sole trader to register for Self-Assessment with HMRC the moment or after their income comes to £1000. It is possible to voluntarily register before that especially if you want access to benefit from the voluntary Class 2 National Insurance scheme or to prove that you are self-employed for setting up tax-free childcare.

The new limited companies, on the other hand, have to register for corporation tax while registering with Companies House, i.e., it can be done pari passu. However, if you opted not to do it while incorporating with Companies House, you must do that separately via the HMRC website online with the steps listed above. 

It is important to know that a limited company must be registered for corporation tax before commencing business unlike the sole trader, otherwise they stand being penalised. This also applies to a dormant company that is looking to resume business.

Also, once a sole trader starts earning over £85,000 VAT taxable turnover, they must compulsorily register for VAT with HMRC. The VAT taxable turnover is the sum total of all goods and services sold that are not VAT exempted. This applies to every business actually – whether sole trader or limited company. This can help boost their business’s credibility. Value added tax (VAT) registration may be compulsory even if your taxable turnover is less than the threshold depending on some goods and service sold as well as the location of their sale.

Conclusion

Although it is compulsory for all taxpayers including new and old companies to register with HMRC to pay tax, there is no need to submit any kind of annual report to them, unlike the Companies House. Also, personal information submitted to the HMRC is not public knowledge but tax filing must be up to date and accurate. This is to ensure the database of the HMRC is accurate too.

Since the HMRC is the data controller for all its enterprise customers as well as the Valuation Office Agency (VOA), they have the legal right to share your personal data and information with some third party organisations. However, they will inform you before they do so and only share what is necessary.

You must also accurately declare the financial state of your business or how much you earn if you are under someone else’s employment. This is to avoid penalisation and possible indictment. You can seek the help of a financial accountant to make sure your books are balanced.