HM Revenue and Customs (HMRC)

DEFINITION of 'HM Revenue and Customs (HMRC)'

Her Majesty's Revenue and Customs (HMRC) is the tax authority of the UK government that is responsible for collecting taxes, paying child benefits, protecting the UK borders against illegal activity, and enforcing the payment of minimum wage by employers.

HMRC was formed in 2005 when the former Inland Revenue and the Board of Customs and Excise merged together.

Also known as Her Majesty's Revenue Services or just simply, Revenue and Services.

BREAKING DOWN 'HM Revenue and Customs (HMRC)'

The Structure of HM Revenue and Customs

Under the 2005 Commissioners for Revenue and Customs Act (CRCA), Commissioners appointed by the Queen to take responsibility for the nation’s taxation system established Her Majesty's Revenue and Customs (HMRC) as a non-ministerial department in 2005. As such, HMRC reports directly to Parliament through the Treasury which is under the leadership of the Chancellor of the Exchequer. The Treasury, in turn, supervises spending by HMRC.

One of the key functions of HMRC is to ensure that the flow of money to the Exchequer is seamless through its tax collection, compliance, and enforcement programs. HMRC comprises four key operational groups, each of which is managed by a Director General. Each of these groups is responsible for:

  1. Personal tax
  2. Business tax
  3. Payment and administration of benefits and credits
  4. Compliance and enforcement duties

The collection of taxes, and the enforcement of tax laws in cases of non-payment, ensures the continual movement of funds into the Treasury. The payment of benefits and tax credits provides practical support to families and individuals entitled to this assistance. The safe-guarding of the UK borders protects the nation’s interests and encourages above-board international trade.

Functions of HM Revenue and Customs

The functions of the taxation groups within HMRC are primarily tasked to ensure that the taxation system is implemented and adhered to in the most effective way possible, that the collection of taxes and transfer of funds to the Treasury is conducted efficiently, and that revenue for the funding of public services is readily available. Another role of the tax-related sector of HMRC is to educate and inform the public about their tax-paying duties.

The Benefits and Credits division of HMRC is responsible for the administration and payment of tax credits, Child Benefit, and Statutory Payments including statutory sick pay and statutory maternity pay.

The Enforcement and Compliance operational group handles diverse areas such as taking action against the non-payment of taxes, recovering unpaid student loans, implementing systems to reduce tax avoidance (such as DOTAS), and enforcing the payment of minimum wage. HMRC can conduct an investigation into individuals and businesses that are suspected to be evading taxes or committing fraud. If the tax authority believes the entity purposely withheld information in its income disclosure, it would proceed with a criminal investigation.

The Customs arm of HMRC is focused on the protection of the UK borders against illegal activities including trafficking of drugs and other illicit goods. Other duties encompass the facilitation of legitimate international trade, as well as the collection of trade statistics for the UK.

HMRC also administers the Government Banking Service, which provides reports to HM Treasury in order to facilitate an accurate cash management system.

A Recent Merger with a Long History

In 2004, prior to the merger of Customs and Excise and the Inland Revenue, a case was presented by the O’Donnell report that organizational change offered “potential improvements in customer service, effectiveness and efficiency.” The merging of direct and indirect revenue departments had been considered and even implemented before, as far back as 1849, when the Board of Stamps and Taxes was merged with the Board of Excise, creating the Board of Inland Revenue. In 1909, the excise duties were removed from the administration of the Inland Revenue, and were combined with the Board of Customs to form the Board of Customs and Excise.

In 1862, a committee was appointed to investigate whether it would be advantageous to combine the duties of the Inland Revenue with those of Customs and Excise. The proposal was overturned at the instigation of the Inland Revenue.  

Once again, the suggestion was made in a 1999 report by the Treasury Committee, citing the potential savings in public expenditure and compliance costs that a merger could engender.

The decision, announced in March 2004, to merge the Inland Revenue and the Board of Customs and Excise was met with some skepticism, as the two departments had such different historical and cultural foundations, and legal structure. There was also the question of job losses, which in fact were substantial and occurred in spates over a period of years.

Revenue and Customs in 2017 and Beyond

Having made it through the first decade or so post-merger, HMRC has weathered adjustment issues ranging from public difficulty in accepting this new entity to complex restructuring phases to large scale job losses.

Streamlining their processes, and offering clear and accessible information about the services and responsibilities of their department, HM Revenue and Customs continues to grow and evolve, innovating ways to make its processes more effective and technologically up-to-date.