Home Open Banking & Finance HMRC reaches milestone as £1bn in UK tax paid through open banking

HMRC reaches milestone as £1bn in UK tax paid through open banking

HMRC and open banking: the UK department is believed to be the first, globally, to enable citizens and organisations to make tax payments using open banking

HM Revenue & Customs (HMRC) has reached a significant open banking milestone as the UK government integrates fintech solutions into its own operations.

The department confirmed to Global Government Fintech today (29 September) that a total of at least £1 billion (about $1.35bn) in tax – via more than 500,000 individual payments in total – has been paid to the government using open banking technology since it engaged a fintech company, Ecospend, to enable it to collect tax payments in this way. 

HMRC introduced an open banking-enabled ‘Pay by bank account’ option for people making online self-assessment tax returns on 24 March. Payment of three further taxes via open banking was made possible shortly afterwards: PAYE (Pay-As-You-Earn) payments (tax paid direct from workers’ salaries) on 5 May; and then corporation tax and value-added tax (VAT). The department wants to roll out open banking across further tax regimes.

In enabling people or organisations to make payments to government using open banking – which involves the use of open application programming interfaces (APIs) to enable bank account holders to share their financial data with third parties – HMRC is looking to make payments to government simpler and safer, and to save government money.

Although the £1bn – which is the total from self-assessment, PAYE, corporation tax and VAT payments combined – is inevitably small relative to the government’s total tax take, the £1bn milestone is a moment to celebrate for open banking’s advocates, who are enthusiastic for the potential for public authorities worldwide in procuring fintech solutions.

How it works

One organisation keen to highlight the £1bn landmark is Ecospend, which is providing the payments software to HMRC. The London-based company was successful in a procurement revealed by Global Government Fintech more than one year ago – believed to be the first time that any government department worldwide had run a procurement process specifically for open banking implementation.

Ecospend’s brief, worth up to £3m ($4.2m), sees the company contracted to provide ‘account-to-account’ payment software that allows HMRC to process payments, or, to use an acronym, launch PISP (Payment Initiation Service Provider) services. Before 24 March, individuals and organisations making payments to HMRC have 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. This automation should increase speed, reduce human error (for example, if someone were to mistype their tax reference number), and also has the potential to reduce fraud.

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.

More open banking possibilities on the way

HMRC’s head of payments, Nick Down, told Global Government Fintech that the open banking-payment option would be extended to “further tax regimes”.

“Payments are a crucially important part of what we do. We need to provide easy to use, secure payments for our customers that are cost effective for the nation’s taxpayers.”

“We are continually monitoring the development of open banking and considering the role it can play in improving the way our customers can pay HMRC,” he added.

In a Q&A with Down published earlier this year on the website of the Open Banking Implementation Entity (OBIE), the body set up by the UK’s Competition & Markets Authority (CMA) to deliver open banking, Down said HMRC “will be rolling out the open banking service to all our other taxes and regimes that can be paid by bank transfer”.

More technical open banking-related priorities for HMRC are believed to include what is known as ‘decoupled authentication’, which enables payers to switch between mobile- and desktop devices when paying.

Government’s stamp of approval helpful

The 500,000-plus payments volume suggests that the rate of people or organisations using open banking to pay the government has accelerated during the past six months, which one would potentially expect for reasons including that the number of taxes payable through open banking has quadrupled.

In the first week of going live with open banking (for self-assessment payments), HMRC received more than 5,000 payments via the Ecospend-powered button, the department’s digital payments business lead, Rachel McLaren, told an OBIE-organised webinar on 31 March. Should a similar usage rate have been maintained for the subsequent 25 weeks, about 130,000 payments would have so far been made.  

Given that HMRC extended the service to different regimes at different dates and stages in their payment cycles, the department told Global Government Fintech that it was yet have a firm split of take-up between the regimes. “But we have seen enough to be reassured that take up has been good across all regimes,” Down said.

On the back of its use of open banking, HMRC is one of four contenders in the ‘Best Open Banking Initiative’ category at the Emerging Payments Awards, an event organised by the Emerging Payments Association, in London next week (6 October). The other shortlisted entries are Currensea, Konsentus Verify and Wealthify by Tink.

OBIE has worked alongside HMRC on its open banking journey, including the tender that saw Ecospend awarded its contract. The body’s head of ecosystem engagement, Simon Lyons – who is leaving OBIE next month to take up the role of standards transformation lead at retail payments authority Pay.UK – highlighted the £1bn milestone via a post on LinkedIn, saying that ‘UKGOV embracing open banking makes adoption a lot easier [across society]’ and that ‘their brand helps in ironing out the creases that exist in every new initiative.’ 

It is believed that, through its HMRC contract, Ecospend is now processing around 15 per cent of all UK open banking-initiated payments.

‘Making Tax Digital’: latest

HMRC, which collected £636.7 billion in total tax revenue during 2019-2020 (a 1.4 per cent increase on the previous year), began to explore open banking two years ago, with the broader context being the digitalisation of tax administration, including the high-profile ‘Making Tax Digital’ (MTD) initiative.

MTD already applies to VAT-registered businesses with a taxable turnover above the UK’s VAT threshold of £85,000 (about $120,000) – they are now required to keep digital records and use software to submit VAT returns. VAT-registered businesses with a taxable turnover below £85,000 will be required to follow MTD rules from April 2022.

MTD for Income Tax Self-Assessment (MTDfITSA) was due to come in one year later but HMRC announced last week (23 September) that it was being postponed to April 2024.

MTDfITSA means that millions of businesses, self-employed people, property landlords and taxpayers – who would normally file a self-assessment tax return once a year – will be required to keep records digitally and send summaries of their income and expenditure to HMRC four times a year, in addition to an annual declaration.

‘A later start [for MTDfITSA] gives those required to join more time to prepare and for HMRC to deliver a robust service, with additional time for customer testing in the pilot,’ the government said.

Phil Hall, head of public affairs and public policy at London-based professional body AAT (Association of Accounting Technicians), said the delay offered “some much needed breathing space to four million-plus people and [was] very much welcomed”.

*** Separately, an HMRC tender for ‘Confirmation of Payee’ (CoP) services has been won by National Westminster Bank (NatWest). The bank’s contract, which has a total value of up to £9m, started last month and will run until August 2023, with a possible one year extension. Global Government Fintech reported the tender’s issuance in March.

CoP is a name-checking service that uses open APIs to automatically check names against account information held by payment service providers in real-time, with the aim of reducing errors and fraud.
HMRC has used NatWest’s CoP offering for the disbursement of ‘Universal Credit’ (welfare) payments during the Covid-19 pandemic. NatWest’s CoP partner is SurePay, a Dutch fintech.


Global Government Fintech and our sister title Global Government Forum covened an international panel last week (21 September 2021), in conjunction with our knowledge partner IBM, to discuss ‘Tax collection in the age of digital’


Click here for Global Government Fintech’s dedicated ‘Open Banking’ topic section