HMRC extends the use of Open Banking

HMRC estimates that it has saved the public purse about GBP 500,000 (about USD 585,000) in bank charges since the department embedded Open Banking within its own operations almost 18 months ago. On 24 March 2021, the UK department introduced an Open Banking-enabled ‘Pay by bank account’ option (button) for people making online self-assessment tax returns  – believed to be the first time any government in the world had embedded Open Banking within its own operations, according to the aforementioned source. Payment of three further tax types via Open Banking – PAYE (Pay-As-You-Earn) payments (tax paid direct from workers’ salaries), corporation tax, and value-added tax (VAT) – was made possible shortly afterwards. 

The department ended 2021 with 19 tax types payable by clicking on this button. According to Global Government Fintech, HMRC confirmed that, since the start of 2022, the department has added the ‘Pay by bank account’ option to a further 24 tax types. This adds up to a total of 43 tax types now payable to the UK government by Open Banking.

In enabling people or organisations to make payments to government by this method, HMRC is striving to make payments to government simpler and safer, and to save government money. The public purse should save on the resource associated with tracking down payments that fail to arrive because payers have entered their tax code or other information incorrectly, as well as saving on the interchange fee charged by card-providers. According to HMRC’s head of payments, cited by Global Government Fintech, ‘based on assumed customer behaviour, we estimate Open Banking could have saved HMRC around GBP 500,000 in bank charges since implementation. But its greatest benefit is preventing payment mistakes such as keying errors. Around one in 20 payments to HMRC needs intervention, whereas Open Banking payments rarely do so. That is good for our customers and creates additional savings for HMRC, which we are using to further improve our payments customer service.’

HMRC partnered with Ecospend

HM Revenue and Customs has announced in February 2021 that Open Banking provider Ecospend was chosen to build out its next-gen payments infrastructure. In September 2020, HMRC put a GBP 3 million contract out to tender to overhaul the group’s bank transfer process for customer payments, with the opportunity for more Open Banking integration in the future. Ecospend’s brief sees the company contracted to provide ‘account-to-account’ payment software that allows HMRC to process payments, or, to use its technical acronym, launch PISP (Payment Initiation Service Provider) services. Before 24 March 2021, individuals and organisations making payments to HMRC needed to open their banking software (for example, log in to their online bank account) and manually complete a bank transfer payment, also inputting their tax code.

Those opting to pay their tax via Open Banking ‘tick’ to provide consent for Ecospend to securely connect them to their online banking and initiate an authorised payment on behalf of HMRC (an ‘Open Banking Privacy Notice’ seeks to reassure users). The Ecospend-powered service uses validated and pre-populated payment details, enabling payments directly from a payer’s bank account. It is this automation that, its advocates believe, increases speed, reduces human error (for example, people mistyping their tax reference number), and has the potential to reduce fraud.