Who are HMRC?

His Majesty’s Revenue & Customs are a well-known government department, overseeing tax, payments, and customs authority across the UK. But who are they and what do they really do?

In this guide we explore the role of HMRC and their relevance to you as a UK business owner.

What do HMRC do?

As a business owner, you will know just how important it is to stay compliant with HMRC, recording data and reporting to them in a timely and accurate manner.

Currently, there are an estimated 5 million businesses in the UK. And while not all businesses are required to register with HMRC, the current thresholds mean that most will come into direct contact with HMRC at some point during trading.

The key responsibilities of the department, as explained by HMRC themselves, are as follows:

• Safeguarding the flow of money through to the Exchequer

• Ensuring money is available to fund public services

• Providing statutory payments such as statutory sick pay and maternity pay to those eligible

• Accurately and efficiently administering the UK tax system

• Enforcing the National Minimum Wage

Running HMRC compliant payroll  

HMRC oversee the collection of income tax and national insurance from both employer and employee contributions.

As an employer it is important to tell HMRC when you hire a new employee. This is so you can accurately work out their tax code and onboard them onto your payroll. No matter if you employ just one employee or 10, you will typically have to operate PAYE as part of your payroll.

What does PAYE mean?

PAYE is HMRC’s system for collecting income tax and national insurance. Setting up PAYE and registering yourself as an employer is one of the first steps you will take to ensure your business is set up to employ staff.

The first time you pay people; you must have registered at least 2 months prior and received your PAYE reference number. As a business owner you must register for PAYE if the following factors apply to an employee in the current tax year (even if this is the only person you employ):

• They’re paid £96 or more a week

• They get expenses and company benefits

• They’re getting a pension

• They’ve had another job

• They’ve received Jobseeker’s Allowance, Employment and Support Allowance or Incapacity Benefit

These factors must apply within the current tax year (starts April 6th)

Reporting pay and deductions to HMRC

Businesses that run their own payroll have a legal responsibility to report payments and deductions to HMRC, ahead of each payday. This information provides HMRC with how much employees are being paid and how much tax they will be paying, along with other payslip deductions.

However, by using a payroll software, you can automate much of these processes. Including calculating HMRC payments and reporting payroll records to keep you compliant with the government body.

Enforcement of the National Minimum Wage

HMRC are also responsible for enforcing the National Minimum Wage Act 1998 across the UK. The Act is one of the most significant UK employment laws and ensures that workers are paid according to several factors, such as economic stability, cost of living and more.

If an employee believes that they are not being paid the minimum wage they can choose to complain directly to HMRC. This will result in an investigation and subsequent penalties, as well as being directly named by the government on a public list.

Failure to comply with the Act therefore has some impactful consequences on a business. HMRC oversee the entire process of enforcement including extreme cases of taking employers to court.

For more on the National Minimum Wage Act 1998, read our guide and get in touch with our BrightAdvice team If you require further employment law advice.

Recent cases of employers not paying the minimum wage

In 2024 under Sunak’s conservative government, over 500 companies were named in a public list for not paying the minimum wage. Some big household names were included in the list, which highlighted the importance of paying staff accurately but also the potential reputational impact failing to adhere to the law can have, even for the biggest nationwide corporations.

Form a well-loved pizza restaurant chain to small family-run businesses, those who were investigated were publicly named and shamed. With a requirement to pay back staff the monies they were owed. This included one company who owed over £1.5 million  in back payments.

Get help from a trusted payroll provider

With the help of an outsourced payroll service, you can ensure that you stay on the right side of the law.

At BrightHR we offer our managed payroll service, an outsourced payroll option that allows us to manage and complete pay runs for you and much more. Not only we will ensure that your payroll records are accurate, but we will also guarantee compliance with HMRC. So, you won’t have to worry about unexpected fines or legal battles.

By outsourcing your payroll processes, you gain the support of a qualified team with industry training and experience. The BrightHR managed payroll team is CIPP qualified with rapid setup and expert support available when you need it. Book a free payroll demo today to discover both our outsourced payroll service and our integrated payroll software.