What’s worth knowing about HMRC?

HMRC, or His Majesty’s Revenue and Customs, is the UK tax authority that plays a key role in the operation of the UK tax system. Individuals and companies alike are in contact with this office and must comply with the applicable tax rules. Remember, knowledge of your UK tax obligations is essential to avoid problems with the tax office and to run your business optimally.

In this article, we’ll discuss what exactly HMRC is, what its remit is, and what the key issues are in relation to tax returns, tax reliefs, and the obligations businesses have to fulfil.

What is HMRC?

HMRC is the government body responsible for collecting taxes in the UK. It covers taxes such as Income Tax, National Insurance, and VAT, as well as other charges relating to business and paid work. HMRC’s activities are not limited to tax collection; the office is also responsible for verifying the accuracy of accounts, checking their legality, and awarding certain social security benefits and tax reliefs in the UK.

Anyone running a business or working in the UK must report to HMRC and fulfil their UK tax obligations. For entrepreneurs, this primarily means filing the relevant returns regularly and paying taxes on time. Registering a business with HMRC is one of the first steps in setting up a new business.

How to report assessments to HMRC?

One of the most important obligations of entrepreneurs in the UK is to file tax returns through HMRC’s Self-Assessment. This form of self-assessment mainly applies to the self-employed, partners in partnerships, and directors of limited companies. Through self-assessment, taxpayers submit annual returns showing their income, expenses, and tax due.

Key dates related to self-assessment are:

• registration in the self-assessment system by 5 October of the year following the start of operations,
• submission of an online tax return by 31 January each year,
• payment of tax due, also by 31 January.

In the event of delays or errors in tax returns, HMRC can impose penalties for UK tax arrears. Depending on the severity of the failure and the reasons for it, the UK tax authority can impose various types of financial penalties. Late payments may incur interest, while discrepancies in returns can lead to more serious sanctions. To avoid problems, it is advisable to ensure that all documents are correct and, if necessary, to seek the assistance of a professional accountant.

UK tax reliefs and VAT registration with HMRC

UK tax reliefs are an important part of any entrepreneur’s financial strategy; these can include deductions for business-related costs such as office rental, equipment purchases, and business travel. Entrepreneurs can also take advantage of employee allowances, such as Employment Allowance, which allows for reduced National Insurance contributions for employed workers.

Another important obligation for businesses is to register for VAT with HMRC. If the company’s turnover in the last twelve months exceeds a certain threshold (in 2024, it is £90,000), it must register for VAT. Even if the turnover does not exceed this threshold, the business can voluntarily register for VAT and benefit from the allowances due. However, bear in mind that VAT registration requires the regular submission of returns and the payment of tax dues.

HMRC inspections of your business – how to prepare for them?

An HMRC audit of a business can involve various aspects of the business—from checking the accuracy of tax returns filed to verifying the correctness of accounting records. Although these checks are primarily random in nature, they may also arise from irregularities detected or reports of potential misconduct.

In order to be prepared for possible audits, the entrepreneur should ensure that the accounting documents are in order and that declarations and taxes are submitted on time. It is also advisable to consult regularly with an accountant, who will help assess the risk of a possible audit and prepare the appropriate documentation.

Although audits carried out by HMRC are standard procedure, failure to prepare properly can result in sanctions. If you want to avoid irregularities, contact Essence Accounting, which helps businesses prepare for inspections and provides support in the event of any problems with the authorities.

What are the penalties for tax arrears in the UK?

Failure to comply with UK tax rules can lead to serious financial consequences. UK tax arrears penalties are imposed by HMRC for late payments, inadequate record-keeping, or errors in returns. Penalties can range from lump sum charges to interest on late payments. In the worst-case scenario, non-compliance with tax legislation can lead to criminal prosecution.

To avoid problems with HMRC, it is advisable to use professional accountants to help with timely and compliant tax returns. The Essence Accounting team can assist you in dealing with tax arrears and provide advice at every stage of your business.

Do you need expert help? Contact Essence Accounting

Familiarity with UK tax rules and regular contact with HMRC is key to running your UK business smoothly.

Registering a business, filing returns, and taking advantage of tax reliefs are some of the activities that require appropriate knowledge and accuracy. Essence Accounting offers comprehensive assistance with bookkeeping, tax returns, and liaising with HMRC, helping businesses avoid problems and optimise their tax obligations.