HMRC, which stands for His Majesty’s Revenue and Customs (previously Her Majesty’s Revenue and Customs), is the UK’s tax authority.
How does HMRC work?
HMRC enforces tax laws and regulations by administering the collection of taxes from both businesses and individuals.
In terms of payroll, employers are required to pay income tax and national insurance contributions to HMRC on a regular basis.
HMRC works closely with other government authorities to make sure compliance is in check. The department has a right to investigate tax law violations and impose fees and penalties for organizations that haven’t met their payment requirements.
Types of taxes paid to HMRC
There are different types of income taxes paid to HMRC, based on types of income or activity that’s being taxed. These taxes include:
- Corporation Tax: A tax on profits made by companies and corporations with operations in the U.K. It is calculated and paid annually.
- Value Added Tax (VAT): This tax is added to goods and services at each stage of production in the UK — including exports and imports.
- Income Tax: This has to do with people’s income, including employment, self-employment and investment income.
- National Insurance Contributions: Contributions made to the UK’s social security system, like state pension, paternity and maternity pay, and sick pay.
- Capital Gains Tax: A tax on profits made from selling specific assets, like businesses, shares, and property.
- Inheritance Tax: This tax is paid for the estate of someone who’s died, based on the value of their assets at the time of their death.
While businesses aren’t legally required to pay on their employees’ behalf, they do have to deduct income tax and national insurance contributions and remit them to HMRC.