UK vs US: Differences between HMRC and the IRS


Taxes are a fact of life all around the world and most countries have a system in place to collect what is owed from their citizens. However, many of these nations also have a tax gap, which is the difference between the total collected and the amount of tax actually owed.

The UK and USA have similar tax systems, with a payroll and returns that have to be completed each year, but there are some differences. The main one appears to be the complexity of the tax system in the US. Amazingly, reporting and collection of taxes seems more straight forward in Britain than in America.


In the US, employers have to deduct some taxes from the wages of employees, although they are a little different to the income tax and national insurance paid in the UK. Social security taxes have to be deducted as well, so that Americans are covered if they have to claim social security. Even if they know that they will never make a claim, US citizens still have to pay the tax.

Medicare is another deduction through payroll, which is used to pay for healthcare. If no taxes are due to be paid on the wages, no social security or Medicare will be deducted. In Britain, wages are subject to income tax and national insurance contributions (NIC) if they exceed a specified limit, which is covered by personal allowances. Most employed people will pay the correct amount of tax and NIC through their wages.

Tax returns

In the UK, only those people who fall within the self-assessment system must complete and file a tax return. However, in the US it depends on age, income and the filing status of individuals. If a person is single and earning $8,750 or more, they will have to file a return to the Internal Revenue Service (IRS). If they are married, they will file a tax return jointly, whereas in Britain each individual has to file one only if they fulfil the criteria. If an American pays too much tax, they must complete a tax return if they live and work in the US to claim it back.

Investigation time limits also vary. In the UK, HMRC normally has up to one year following the receipt of a tax return to investigate it. In the USA, however, the IRS can investigate up to three years after a filed tax return.

There are many differences between the two tax systems, but an outsourced accounting service can help. If you would like to know more, give us a call.